Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Above par: Having a current price above face value. This would generally be the case if the
coupon paid on the bond exceeds the discount rate applicable, or if market interest rates fall
after the bond is bought. If the bondholder had bought at a price above par, then he/she will
suffer a capital loss upon maturity since the bond will only be redeemed at face value.
Account :
Definition 1 : A record of financial transactions for an asset or individual, such as at a bank,
brokerage, credit card company, or retail store.
Definition 2 : More generally, an arrangement between a buyer and a seller in which
payments are to be made in the future.
Accounting Equation : The fundamental balance sheet equation: assets = liabilities + net
worth.
Accrual basis accounting : The most commonly used accounting method, which reports
income when earned and expenses when incurred, as opposed to cash basis accounting, which
reports income when received and expenses when paid. Under the accrual method, companies
do have some discretion as to when income and expenses are recognized, but there are rules
governing the recognition. In addition, companies are required to make prudent estimates
against revenues that are recorded but may not be received, called a bad debt expense.
Acid-test ratio : The ratio of current assets less inventories to total current liabilities. This
ratio is the most stringent measure of how well the company is covering its short-term
obligations, since the ratio only considers that part of current assets which can be turned into
cash immediately (thus the exclusion of inventories). The ratio tells creditors how much of the
company's short term debt can be met by selling all the company's liquid assets at very short
notice. also called acid-test ratio.
Acquisition : Acquiring control of a corporation, called a target, by stock purchase or
exchange, either hostile or friendly. also called takeover.
ADR : American Depositary Receipt. A negotiable certificate issued by a U.S. bank
representing a specific number of shares of a foreign stock traded on a U.S. stock exchange.
ADRs make it easier for Americans to invest in foreign companies, due to the widespread
availability of dollar-denominated price information, lower transaction costs, and timely
dividend distributions.
ADS : American Depositary Share. The share issued under an American Depositary Receipt
agreement which is actually traded.
Aggressive growth fund : A mutual fund which aims for the highest capital gains and is not
risk-averse in its selection of investments. Aggressive growth funds are most suitable for
investors willing to accept a high risk-return trade-off, since many of the companies which
demonstrate high growth potential can also show a lot of share price volatility. Aggressive
growth funds tend to have a very large positive correlation with the stock market, and so they
often produce very good results during economic upswings and very bad results during
economic downturns. An aggressive growth fund might, for example, buy initial public
offerings (IPOs) of stock from small companies and then resell that stock very quickly in
order to generate big profits. Some aggressive growth funds may even invest in derivatives,
such as options, in order to increase their gains.
flow installments for easier repayment. Unlike other repayment models, each
repayment installment consists of both principal and interest. Amortization is chiefly
used in loan repayments (a common example being a mortgage) and sinking funds.
The payments are usually of equal amounts. In the case of a loan, a greater amount of
the payment is applied to interest at the beginning, while during the latter portion,
more money is applied to principal.
Annual meeting : The company gathering, usually held at the end of each fiscal year, at
which the previous year and the outlook for the future are discussed and directors are elected
by common shareholders. Shortly before each annual meeting, the corporation sends out a
document called a proxy statement to each shareholder. The proxy statement contains a list of
the business concerns to be addressed at the meeting and a ballot for voting on company
initiatives and electing the new Board. This proxy ballot authorizes someone else at the
meeting (usually the management team) to vote on investors' behalf.
Audited document required by the SEC and sent to a public company's or mutual fund's
shareholders at the end of each fiscal year, reporting the financial results for the year
(including the balance sheet, income statement, cash flow statement and description of
company operations) and commenting on the outlook for the future. The term sometimes
refers to the glossy, colorful brochure and sometimes to Form 10-K, which is sent along with
the brochure and contains more detailed financial information. All 10-Ks for public
companies and mutual funds incorporated in the U.S. are available on the SEC's website for
free.
Arbitrage : Attempting to profit by exploiting price differences of identical or similar
financial instruments, on different markets or in different forms. The ideal version is riskless
arbitrage.
Arbitration : A process in which a disagreement between two or more parties is resolved by
impartial individuals, called arbitrators, in order to avoid costly and lengthy litigation.
Arbitrator : A private, neutral person chosen to arbitrate a disagreement, as opposed to a
court of law. An arbitrator could be used to settle any non-criminal dispute, and many
business contracts make provisions for an arbitrator in the event of a disagreement. Generally,
resolving a disagreement through an arbitrator is substantially less expensive than resolving it
through a court of law.
Articles of Association : A document describing the purpose, place of business, and details of
a non-profit organization.
Articles of Incorporation : A document, filed with a U.S. state by a corporation's founders,
describing the purpose, place of business, and other details of a corporation. also called
charter.
Asset : Any item of economic value owned by an individual or corporation, especially that
which could be converted to cash. Examples are cash, securities, accounts receivable,
inventory, office equipment, a house, a car, and other property. On a balance sheet, assets are
equal to the sum of liabilities, common stock, preferred stock, and retained earnings.
Asset allocation fund : A single mutual fund which tries to accomplish the goals of asset
allocation all by itself. Such a fund invests in a variety of securities in different asset classes.
The purpose is to provide investors with truly diversified holdings and consistent returns,
while sparing the investor the trouble of having to accomplish asset allocation by purchasing
a large number of different funds. Some asset allocation funds have a specific breakdown of
asset classes that they try to maintain over time, while others vary the composition as
opportunities and circumstances change.
Asset-backed security : Bonds or notes backed by loan paper or accounts receivable
originated by banks, credit card companies, or other providers of credit; not mortgages.
At call : Any transaction which occurs in the call money market.
At par : A bond or preferred stock which is selling at a price equal its face (or par) value.
Definition 1 :
An examination and verification of a company's financial and accounting records and
supporting documents by a professional, such as a Certified Public Accountant. Definition 2
: An IRS examination of an individual or corporation's tax return, to verify its accuracy. An
audit is an IRS examination of an individual or corporation's tax return, to verify its accuracy.
There are three types of audits: correspondence audits (the IRS mails a request for additional
information), office audits (an interview is conducted at a local IRS office), and field audits
(an interview is conducted at a taxpayer's place of business, for a corporate tax return). Since
there is always the chance of an audit, experts recommend keeping good records to support all
the information in a return. The reason detailed and accurate bookkeeping is so important is
that the burden of proof is on the filer, not the IRS.
Authorized shares : The maximum number of shares of stock that a company can issue. This
number is specified initially in the company's charter, but it can be changed with shareholder
approval. Generally a much greater number of shares are authorized than required, to give the
company flexibility to issue more stock as needed. also called authorized stock or shares
authorized.
Authorized stock : The maximum number of shares of stock that a company can issue. It's
specified initially in the company's charter, but it can be changed with shareholder approval.
also called authorized shares or shares authorized.
Bank Term Loan : A bank loan to a company, with a fixed maturity and often featuring
amortization of principal. If this loan is in the form of a line of credit, the funds are drawn
down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds
from the loan soon after they become available. Bank term loans are very a common kind of
lending.
Basic Earnings Per Share : Earnings per share of common stock.
Bear : An investor who believes that a security, a sector, or the overall market is about to fall.
opposite of bull.
Bearer : The holder of a negotiable instrument.
Bearer bond : An unregistered, negotiable bond on which interest and principal are payable
to the holder, regardless of whom it was originally issued to. The coupons are attached to the
bond, and each coupon represents a single interest payment. The holder submits a coupon,
usually semi-annually, to the issuer or paying agent to receive payment. Bearer bonds are
being phased out in favor of registered bonds. also called coupon bond.
Bell : The open (opening bell) or close (closing bell) of a trading session; sometimes a bell is
used, sometimes a buzzer.
Bill : Definition 1 : A negotiable debt obligation issued by the U.S. government and backed
by its full faith and credit, having a maturity of one year or less. Exempt from state and local
taxes. also called T-Bill or U.S. Treasury Bill or Treasury Bill. Definition 2 : Paper currency.
Definition 3 : An invoice of charges for products and services.
Bill of Exchange : An order by one person for a second person to pay a third.
Black Friday : September 24, 1869, the day the markets crashed following a failed attempt
by some financiers to corner the gold market. Led to a depression.
Black Market : A market where products are bought and sold illegally.
Black Monday : October 19, 1987, the day on which the DJIA fell 508 points
Blackout Period : An interval of up to 60 days during which employees may not adjust the
investments contained in their plans. Such blackout periods often occur when the plan is
undergoing significant changes.
Blend Fund : A mutual fund whose assets are composed of a combination of stocks, bonds,
and money market securities, rather than just one or two of these asset classes. This enables
investors to diversify their holdings with a single fund. Since blend funds vary considerably
in composition is difficult to make generalizations about their performance or risk level, but
usually they are somewhat less risky than stock mutual funds and somewhat more risky than
bond funds or money market mutual funds. also called hybrid funds.
Break-Even Analysis : A calculation of the approximate sales volume required to just cover
costs, below which production would be unprofitable and above which it would be profitable.
Break-even analysis focuses on the relationship between fixed cost, variable cost, and profit.
Break-Even Point : Definition 1 : The price at which an option's cost is equal to the
proceeds acquired by exercising the option. For a call option, it is the strike price plus the
premium paid. For a put option, it is the strike price minus the premium paid. Definition 2 :
The price at which a securities transaction produces neither a gain nor a loss. Definition 3 :
The volume of sales at which a company's net sales just equals its costs.
Broker : An individual or firm which acts as an intermediary between a buyer and seller,
usually charging a commission. For securities and most other products, a license is required.
Books of Original Entry : Accounting journals where financial transactions are initially
recorded.
Capital Asset Pricing Model : CAPM. An economic model for valuing stocks by relating
risk and expected return. Based on the idea that investors demand additional expected return
(called the risk premium) if asked to accept additional risk.
Capital Budget : A plan to finance long-term outlays, such as for fixed assets like facilities
and equipment.
Capital Expenditure : Money spent to acquire or upgrade physical assets such as buildings
and machinery. also called capital spending or capital expense.
Capital Gain : The amount by which an asset's selling price exceeds its initial purchase price.
A realized capital gain is an investment that has been sold at a profit. An unrealized capital
gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain
is often used to mean realized capital gain. For most investments sold at a profit, including
mutual funds, bonds, options, collectibles, homes, and businesses, the IRS is owed money
called capital gains tax. opposite of capital loss.
Capital Goods : Raw materials used to produce finished products.
Capital Loss : The decrease in the value of an investment or asset. opposite of capital gain.
Capital Market : A market where debt or equity securities are traded.
Capital Stock : The number of shares authorized for issuance by a company's charter,
including both common stock and preferred stock.
Cash Flow : A measure of a company's financial health. Equals cash receipts minus cash
payments over a given period of time; or equivalently, net profit plus amounts charged off for
depreciation, depletion, and amortization.
Cash Flow Statement : A summary of a company's cash flow over a given period of time.
Chapter 10 : The part of the U.S. Bankruptcy Code describing how a company can file for
court protection. Reorganization occurs under an independent, court-appointed manager.
Chapter 11 : The part of the U.S. Bankruptcy Code describing how a company or creditor
can file for court protection. In the case of a corporation, reorganization occurs under the
existing management.
Chapter 13 : The part of the U.S. bankruptcy code allowing an individual to begin debt
repayment without forfeiting property. Chapter 13 requires that the debtor maintain a source
of income and adhere to a payment schedule set forth by the court.
Chapter 7 : The part of the U.S. Bankruptcy Code describing the liquidation of a company
after bankruptcy.
Class Action Suit : A lawsuit brought by one party on behalf of a group of individuals all
having the same grievance.
Clearinghouse : An agency associated with an exchange, which settles trades and regulates
delivery.
Closed Corporation : A corporation in which all of the voting stock is held by a few
shareholders, such as management or family members. also called private company.
Closed-End Fund : A fund with a fixed number of shares outstanding, and one which does
not redeem shares the way a typical mutual fund does. Closed-end funds behave more like
stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an
initial public offering, after which time shares in the fund are bought and sold on a stock
exchange, and they are not obligated to issue new shares or redeem outstanding shares as
open-end funds are. The price of a share in a closed-end fund is determined entirely by market
demand, so shares can either trade below their net asset value ("at a discount") or above it ("at
a premium"). also called closed-end investment company or publicly-traded fund.
Closed Fund : An open-end mutual fund that has temporarily or permanently suspended sale
of shares to new customers, usually due to rapid asset growth. Outstanding shares are still
accepted for redemption by the fund, and existing shareholders may also buy shares in some
cases. The primary reason for closing a fund to new investors is that fund managers are
concerned that if they increase the asset base of the fund any further, their current investment
strategy will become too difficult to achieve.
Collective Bargaining : A method of negotiation in which employees use authorized union
representatives to assist them.
COMEX : Commodity Exchange. The leading U.S. exchange for metals futures and options
trading.
Cost of Sales : On an income statement, the cost of purchasing raw materials and
manufacturing finished products. Equal to the beginning inventory plus the cost of goods
purchased during some period minus the ending inventory. also called Cost Of Goods Sold
(COGS).
Debenture : Unsecured debt backed only by the integrity of the borrower, not by collateral,
and documented by an agreement called an indenture. One example is an unsecured bond.
Debit Note : A note indicating an amount owed by a person or company. Serves the same
function as an invoice.
Debt : A liability or obligation in the form of bonds, loan notes, or mortgages, owed to
another person or persons and required to be paid by a specified date (maturity).
Deed of Trust : The document used in some states instead of a mortgage. Title is conveyed to
a trustee rather than to the borrower.
Dividend : A taxable payment declared by a company's board of directors and given to its
shareholders out of the company's current or retained earnings, usually quarterly. Dividends
are usually given as cash (cash dividend), but they can also take the form of stock (stock
dividend) or other property. Dividends provide an incentive to own stock in stable companies
even if they are not experiencing much growth. Companies are not required to pay dividends.
The companies that offer dividends are most often companies that have progressed beyond
the growth phase, and no longer benefit sufficiently by reinvesting their profits, so they
usually choose to pay them out to their shareholders. also called payout.
Earnings per Share : EPS. Total earnings divided by the number of shares outstanding.
Companies often use a weighted average of shares outstanding over the reporting term. EPS
can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"),
or for the coming year ("forward EPS"). Note that last year's EPS would be actual, while
current year and forward year EPS would be estimates.
Encroachment : A structure, or part of a structure, built on another individual's property.
Encumbered : Owned by one entity but subject to another's valid claim.
Endorsement : Definition 1 : A signature used to legally transfer a negotiable instrument.
Definition 2 : A provision added to an existing insurance policy to modify its coverage;
here, also called rider.
Endowment : A permanent fund bestowed upon an individual or institution, such as a
university, museum, hospital, or foundation, to be used for a specific purpose.
Equilibrium : Balance, for example when demand equals supply.
Equity Fund : A mutual fund which invests primarily in stocks, usually common stocks.
Exchange : Definition 1 : Any organization, association or group which provides or
maintains a marketplace where securities, options, futures, or commodities can
For transactions during the ex-dividend period, the seller, not the buyer, will receive the
dividend. Ex-dividend is usually indicated in newspapers with an x next to the stock or
mutual fund's name. In general, a stocks price drops the day the ex-dividend period starts,
since the buyer will not receive the benefit of the dividend payout till the next dividend date.
As the stock gets closer to the next dividend date, the price may gradually rise in anticipation
of the dividend.
Ex-Dividend Date : The first day of the ex-dividend period. The ex-dividend date was
created to allow all pending transactions to be completed before the record date. If an investor
does not own the stock before the ex-dividend date, he or she will be ineligible for the
dividend payout. Further, for all pending transactions that have not been completed by the exdividend date, the exchanges automatically reduce the price of the stock by the amount of the
dividend. This is done because a dividend payout automatically reduces the value of the
company (it comes from the company's cash reserves), and the investor would have to absorb
that reduction in value (because neither the buyer nor the seller are eligible for the dividend).
also called reinvestment date.
Face Value : The nominal dollar amount assigned to a security by the issuer. For an equity
security, face value is usually a very small amount that bears no relationship to its market
price, except for preferred stock, in which case face value is used to calculate dividend
payments. For a debt security, face value is the amount repaid to the investor when the bond
matures (usually, corporate bonds have a face value of $1000, municipal bonds $5000, and
federal bonds $10,000). In the secondary market, a bond's price fluctuates with interest rates.
If interest rates are higher than the coupon rate on a bond, the bond will be sold below face
value (at a "discount"). If interest rates have fallen, the price will be sold above face value.
here also called par or par value.
Fiscal Year : An accounting period of 365 days (366 in leap years), but not necessarily
starting on January 1.
Form 10-K : Audited document required by the SEC and sent to a public company's or
mutual fund's shareholders at the end of each fiscal year, reporting the financial results for the
year (including the balance sheet, income statement, cash flow statement and description of
company operations) and commenting on the outlook for the future. The term sometimes
refers to the glossy, colorful brochure and sometimes to Form 10-K, which is sent along with
the brochure and contains more detailed financial information. All 10-Ks for public
companies and mutual funds incorporated in the U.S. are available on the SEC's website for
free. also called annual report.
Form 10-Q : Unaudited document required by the SEC for all U.S. public companies,
reporting the financial results for the quarter and noting any significant
changes or events in the quarter. The Form 10-Q contains financial statements,
a discussion from the management, and a list of "material events" that have
occurred with the company (such as a stock split or acquisition). also called
quarterly report.
Form 3 : A document required by the SEC and the appropriate stock exchange to announce
the holdings of directors, officers, and shareholders owning 10% or more of the company's
outstanding stock.
Form 4 : A document required by the SEC and the appropriate stock exchange to announce
changes in the holdings of directors, officers, and shareholders owning 10% or more of the
company's outstanding stock.
Form 8-K : A document required by the SEC to announce certain significant changes in a
public company, such as a merger or acquisition, a name or address change, bankruptcy,
change of auditors, or any other information which a potential investor ought to know about.
Form S-1 : A registration statement used in the initial public offering of securities.
Form T : A NASD-required form that is used by brokers to report equity transactions after
the market's usual hours.
Fortune 500 : An annual list of the 500 largest industrial corporations in the U.S., published
by Fortune magazine. The corporations are ranked based on such metrics as revenues, profits,
and .
Franchise : A form of business organization in which a firm which already has a successful
product or service (the franchisor) enters into a continuing contractual relationship with other
businesses (franchisees) operating under the franchisor's trade name and usually with the
franchisor's guidance, in exchange for a fee.
Fully Diluted Earnings Per Share : Common stock earnings per share that would result if
all warrants and stock options were exercised and all convertible bonds and preferred stock
were converted. For a firm that has a lot of stock options, warrants, convertible bonds and
preferred stock outstanding, the fully diluted earnings per share are the most appropriate way
of looking at earnings on a per share basis.
Fund : Definition 1 : To finance or underwrite. Definition 2 : An investment company or
mutual fund.
GAAP : Generally Accepted Accounting Principles. A widely accepted set of rules,
conventions, standards, and procedures for reporting financial information, as established by
the Financial Accounting Standards Board.
Global Depositary Receipt : GDR. A negotiable certificate held in the bank of one country
representing a specific number of shares of a stock traded on an exchange of another country.
American Depositary Receipts make it easier for individuals to invest in foreign companies,
due to the widespread availability of price information, lower transaction costs, and timely
dividend distributions. also called European Depositary Receipt.
Going Concern : The idea that a company will continue to operate indefinitely, and will not
go out of business and liquidate its assets. For this to happen, the company must be able to
generate and/or raise enough resources to stay operational.
Goodwill : An intangible asset which provides a competitive advantage, such as a strong
brand, reputation, or high employee morale. In an acquisition, goodwill appears on the
balance sheet of the acquirer in the amount by which the purchase price exceeds the net
tangible assets of the acquired company.
Grant : Definition 1 : Funding for a nonprofit organization, usually for a specific project.
Definition 2 : To give a right to.
Growth and Income Fund : A mutual fund whose aim is to provide both growth and
income, often by investing in companies which have earnings growth as well as dividends.
Growth Fund : A mutual fund whose aim is to achieve capital appreciation by investing in
growth stocks. They focus on companies that are experiencing significant earnings or revenue
growth, rather than companies that pay outdividends. The hope is that these rapidly growing
companies will continue to increase in value, thereby allowing the fund to reap the benefits of
large capital gains. In general, growth funds are more volatile than other types of funds, rising
more than other funds in bull markets and falling more in bear markets.
Hedge : An investment made in order to reduce the risk of adverse price movements in a
security, by taking an offsetting position in a related security, such as an option or a short sale.
Hedge Fund : A fund, usually used by wealthy individuals and institutions, which is allowed
to use aggressive strategies that are unavailable to mutual funds, including selling short,
leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from
many of the rules and regulations governing other mutual funds, which allows them to
accomplish aggressive investing goals. They are restricted by law to no more than 100
investors per fund, and as a result most hedge funds set extremely high minimum investment
amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual
funds, investors in hedge funds pay a management fee; however, hedge funds also collect a
percentage of the profits (usually 20%).
Horizontal Acquisition : An acquisition by one company of another company in the same
industry.
Horizontal Merger : Merger of two or more companies with similar product lines.
Hostile Takeover : A takeover which goes against the wishes of the target company's
management and board of directors. opposite of friendly takeover.
Hot Issue : Stock, often an IPO, which is in great demand.
Hypothecation : The pledging of securities or other assets as collateral to secure a loan, such
as a debit balance in a margin account.
Hyperinflation : A period of rapid inflation that leaves a country's currency virtually
worthless.
Impairment : The amount by which stated capital is reduced by distributions and losses.
Imperfect Market : A market in which the public does not immediately receive full access to
financial information about securities and in which buyers are not immediately matched with
sellers for particular securities.
Income Fund : A mutual fund which emphasizes current income in the form ofdividends or
coupon payments from bonds and/or preferred stocks, rather than emphasizing growth.
Income funds are considered to be conservative investments, since they avoid volatile growth
stocks. Income funds are popular with retirees and other investors who are looking for a
steady cash flow without assuming too much risk.
Index Fund : A passively managed mutual fund that tries to mirror the performance of a
specific index, such as the S&P 500. Since portfolio decisions are automatic and transactions
are infrequent, expenses tend to be lower than those of actively managed funds.
Joint Stock Company : A company which has some features of a corporation and some
features of a partnership.
Joint Venture : A contractual agreement joining together two or more parties for the purpose
of executing a particular business undertaking. All parties agree to share in the profits and
losses of the enterprise.
Junior Debt : Debt that is either unsecured or has a lower priority than that of another debt
claim on the same asset or property. also called subordinated debt.
Limited Company : A business structure used in Europe and Canada, in which shareholder
responsibility for company debt is limited to the amount he/she has invested in the company.
Abbreviated Ltd or plc.
Limited Liability Partnership : LLP. Another name for a Limited Liability Company, often
used by professional associations. The partner or investor's liability is limited to the amount
he/she has invested in the company.
limited liability : Type of investment in which a partner or investor cannot lose more than the
amount invested. Thus, the investor or partner is not personally responsible for the debts and
obligations of the company in the event that these are not fulfilled.
Limited Liability Company : LLC. A type of company whose owners and managers receive
the limited liability and (usually) tax benefits of an S Corporation without having to conform
to the S corporation restrictions.
limited partnership : A business organization with one or more general partners, who
manage the business and assume legal debts and obligations, and one or more limited
partners, who are liable only to the extent of their investments. Limited partners also enjoy
rights to the partnership's cash flow, but are not liable for company obligations.
liquidity : The ability of an asset to be converted into cash quickly and without any price
discount.
Lockup Period : An interval during which an investment may not be sold. In the case of an
IPO, employees may not sell their shares for a period time determined by the underwriter and
usually lasting 180 days.
Long-Term Assets : On a balance sheet, the value of a company's property, equipment and
other capital assets expected to be useable for more than one year, minus depreciation.
Malpractice : Injurious conduct by an individual acting in an official or professional
capacity, such as a doctor.
Manifesto : A written declaration of intent or principles.
Marginal Cost : The cost associated with one additional unit of production. also called
incremental cost.
Money Market : Market for short-term debt securities, such as banker's acceptances,
commercial paper, repos, negotiable certificates of deposit, and Treasury Bills with a maturity
of one year or less and often 30 days or less. Money market securities are generally very safe
investments which return a relatively low interest rate that is most appropriate for temporary
cash storage or short-term time horizons. Bid and ask spreads are relatively small due to the
large size and high liquidity of the market.
Merger : The combining of two or more entities into one, through a purchase acquisition or a
pooling of interests. Differs from a consolidation in that no new entity is created from a
merger.
Mortgagee : The creditor or lender in a mortgage agreement.
Mutual Company : A company whose profits are distributed in proportion to the amount of
business each participant does with the company. Examples include federal savings and loan
associations, state-chartered mutual savings banks, and mutual insurance companies.
Mutual Fund : An open-ended fund operated by an investment company which raises money
from shareholders and invests in a group of assets, in accordance with a stated set of
objectives. mutual funds raise money by selling shares of the fund to the public, much like
any other type of company can sell stock in itself to the public. Mutual funds then take the
money they receive from the sale of their shares (along with any money made from previous
investments) and use it to purchase various investment vehicles, such as stocks, bonds and
money market instruments. In return for the money they give to the fund when purchasing
shares, shareholders receive an equity position in the fund and, in effect, in each of its
underlying securities. For most mutual funds, shareholders are free to sell their shares at any
time, although the price of a share in a mutual fund will fluctuate daily, depending upon the
performance of the securities held by the fund. Benefits of mutual funds include
diversification and professional money management. Mutual funds offer choice, liquidity, and
convenience, but charge fees and often require a minimum investment. A closed-end fund is
often incorrectly referred to as a mutual fund, but is actually an investment trust. There are
many types of mutual funds, including aggressive growth fund, asset allocation fund,
balanced fund, blend fund, bond fund, capital appreciation fund, clone fund, closed fund,
crossover fund, equity fund, fund of funds, global fund, growth fund, growth and income
fund, hedge fund, income fund, index fund, international fund, money market fund, municipal
bond fund, prime rate fund, regional fund, sector fund, specialty fund, stock fund, and tax-free
bond fund.
National Income : The income earned by a country's people, including labor and capital
investment.
NAV : Net Asset Value. The dollar value of a single mutual fund share, based on the value of
the underlying assets of the fund minus its liabilities, divided by the number of shares
outstanding. Calculated at the end of each business day.
Net Present Value : NPV. The present value of an investment's future net cash flows minus
the initial investment. If positive, the investment should be made (unless an even better
investment exists), otherwise it should not.
Nifty Fifty : Term given to fifty blue chip stocks which were so popular prior to the bear
market of 1973-1974 that their prices were temporarily driven up to ridiculous levels.
Open-end funds offer choice, liquidity, and convenience, but charge and often require a
minimum investment. also called mutual fund.
Open Market : A market which is widely accessible to all investors or consumers.
Operating Asset : Asset which contributes to the regular income from a company's
operations.
Outside Director : A member of a corporation's board of directors who is not an employee of
the company and has no operational responsibilities within the company.
Preference Shares : Capital stock which provides a specific dividend that is paid before any
dividends are paid to common stock holders, and which takes precedence over common stock
in the event of a liquidation. Like common stock, preference shares represent partial
ownership in a company, although preferred stock shareholders do not enjoy any of the voting
rights of common stockholders. Also unlike common stock, preference shares pay a fixed
dividend that does not fluctuate, although the company does not have to pay this dividend if it
lacks the financial ability to do so. The main benefit to owning preference shares are that the
investor has a greater claim on the companys assets than common stockholders. Preferred
shareholders always receive their dividends first and, in the event the company goes bankrupt,
preferred shareholders are paid off before common stockholders. In general, there are four
different types of preferred stock: cumulative preferred, non-cumulative, participating, and
convertible. also called preferred stock.
Public Company : A company which has issued securities through an offering, and which are
now traded on the open market. also called publicly held or publicly traded. opposite of
private company.
Public Sector : The part of the economy concerned with providing basic government
services. The composition of the public sector varies by country, but in most countries the
public sector includes such services as the police, military, public roads, public transit,
primary education and healthcare for the poor. The public sector might provide services that
non-payer cannot be excluded from (such as street lighting), services which benefit all of
society rather than just the individual who uses the service (such as public education), and
services that encourage equal opportunity.
Quorum : Minimum number of people who must be present (physically or by proxy) in order
for a decision to be binding.
Quote : The highest bid or lowest ask price available on a security at any given time.
Regional Fund : Mutual fund which invests in one specific region of a country or the world.
Registered Company : A corporation that has filed a registration statement with the SEC
prior to releasing a new stock issue.
Reverse Acquisition : One way for a company to become publicly traded, by acquiring a
public company and then installing its own management team and renaming the acquired
company.
Reverse Merger : The acquisition of a public company by a private company, allowing the
private company to bypass the usually lengthy and complex process of going public.
Reverse Mortgage : An arrangement in which a homeowner borrows against the equity in
his/her home and receives regular monthly tax-free payments from the lender. also called
reverse-annuity mortgage or home equity conversion mortgage.
Reverse Split : A stock split which reduces the number of outstanding shares and increases
the per-share price proportionately. This is usually an attempt by a company to disguise a
falling stock price, since the actual market capitalization of the stock does not change at all.
For example, if a company declares a one-for-ten reverese split, then a person who previously
held 20 shares valued by the market at $1 each will then have 2 shares worth $10 each. Many
stock exchanges in the U.S. do not allow companies with a stock price of less than $1 to
remain listed, and many such companies then have to undertake reverse splits if they want to
remain listed.
Reverse Take-Over : Definition 1 : RTO. When a company buys out a larger company, but
could also occasionally refer to a private company taking over a publicly listed company.
Typically, a public company that is taken over by a private company will remain listed, and
the private company will use the acquisition as means of gaining a listing. A reverse take-over
is a relatively rare event. Definition 2 : One way for a company to become publicly traded,
by acquiring a public company and then installing its own management team and renaming
the acquired company. also called reverse acquisition.
SEC filing : A document, usually containing financial data, that a company delivers to the
SEC and, thereby, to the public.
Sector Fund : A mutual fund which invests entirely or predominantly in a single sector.
Sector funds tend to be riskier and more volatile than the broad market because they are less
diversified, although the risk level depends on the specific sector. Some investors choose
sector funds when they believe that a specific sector will outperform the overall market, while
others choose sector funds to hedge against other holdings in a portfolio. Some common
sector funds include financial services funds, gold and precious metals funds, health care
funds, and real estate funds, but sector funds exist for just about every sector.
Underwater : A call option whose strike price is higher than the market price of the
underlying security, or a put option whose strike price is lower than the market price of the
underlying security. Thus, there is no incentive to exercise the option today. However, the
option still has "time value", value based on the fact that the prices of the underlier can
change. This "time value" diminishes as the option approaches maturity.
U.S. Treasury Bill : A negotiable debt obligation issued by the U.S. government and backed
by its full faith and credit, having a maturity of one year or less. U.S. Treasury Bills are
exempt from state and local taxes. These securities do not pay a coupon rate of interest, and
the interest earned is estimated by taking the difference between the price paid and the par
value of the bond, and calculating that rate of return on an annual basis. Treasury Bills are
considered the safest securities available to the U.S. investor, and so the yield on these
securities are considered the risk-free rate of return. also called Bill or T-Bill or Treasury Bill.
U.S. Treasury Bond : A negotiable, coupon-bearing debt obligation issued by the U.S.
government and backed by its full faith and credit, having a maturity of more than 7 years.
Interest is paid semi-annually. U.S. Treasury Bonds are exempt from state and local taxes.
These securities have the longest maturity of any bond issued by the U.S. Treasury, from 10
to 30 years. The 30-year bond is also called the "long bond." Denominations range from
$1000 to $1 million. U.S. Treasury Bonds pay interest every 6 months at a fixed coupon rate.
These bonds are not callable, but some older U.S. Treasury Bonds available on the secondary
market are callable within five years of the maturity date. also called Treasury bond or Tbond.
U.S. Treasury Note : A negotiable debt obligation issued by the U.S. government and backed
by its full faith and credit, having a maturity of between 1 and 10 years. U.S. Treasury Notes
are safe investments and are actively traded in the secondary market. also called Treasury
Note.
Value Added Tax : VAT. A consumption tax which is levied at each stage of production based
on the value added to the product at that stage.
Venture Capital : VC. Funds made available for startup firms and small businesses with
exceptional growth potential. Managerial and technical expertise are often also provided. also
called risk capital.
Vertical Acquisition : An acquisition in which the acquirer and the target are in the same
industry but focus on different parts of the production process.
Vertical Merger : Merger of a vendor and a customer.
Warrant : A certificate, usually issued along with a bond or preferred stock, entitling the
holder to buy a specific amount of securities at a specific price, usually above the current
market price at the time of issuance, for an extended period, anywhere from a few years to
forever. In the case that the price of the security rises to above that of the warrant's exercise
price, then the investor can buy the security at the warrant's exercise price and resell it for a
profit. Otherwise, the warrant will simply expire or remain unused. Warrants are listed on
options exchanges and trade independently of the security with which it was issued. also
called subscription warrant.
White Paper : An educational report made available to the public that expounds on a
particular industry issue.
DIRECTORS RESPONSIBILITIES
1.
COMPANIES
DIRECTORS
2.1 Definition
The Companies Act states that the term includes any person
occupying the position of director by whatever name called. A
company may give its directors alternative titles; this does not affect
their legal status.
Indeed, the title director does not imply board status. It is generally
accepted that a Director of ... does not sit on the board, but the ...
Director does. A director is therefore recognised by function, not
by title.
One of several individuals elected by a corporation's shareholders to
establish company policies, including selection of operating officers
and payment of dividends.
Insider
A shareholder who owns more than 10% of a corporation, or an officer or
director.
Outside director
A member of a corporation's board of directors who is not an employee of
the company and has no operational responsibilities within the company.
2.2 Types of directors
In addition to board duties executive directors have day-to-day
management responsibilities. Normally such directors are employed
under a service contract.
Non-executive directors take no part in the day-to-day running of
the business, but contribute at board meetings. Strictly nonexecutive directors have the same responsibilities as executive
The first directors are appointed when the company is formed but
must normally retire at the first annual general meeting. Directors
may then offer themselves for re-election.
The directors may appoint additional directors or fill any vacancy
which arises, but the person appointed must normally retire at the
following annual general meeting. A notice of appointment, must be
signed by the appointee and a serving director and then filed with the
Registrar of Companies.
Certain persons may be disqualified from directorship by the articles,
for example those of unsound mind and those absent from board
meetings for six months or more without consent. The following can
never be appointed as director:
-
Directors are entrusted with the assets of the shareholders and should
therefore act in good faith in the best interests of the company. They
should not place themselves in a position of conflict between
personal and company interests. A director should try to avoid any
interest in contracts entered into by the company. Where such an
interest exists the director is required to make disclosure to the
board.
The fiduciary duty of a director also excludes him gaining personally
from opportunities arising due to his directorship regardless of him
acting for the good of the company. Should any such profit arise it
must be paid over to the company.
Company law recognises the importance of a directors fiduciary duty
and has re-inforced the common law principles by including detailed
statutory requirements regarding transactions between a company
and its directors (see section 6).
3.2 Skill and care
Every director is required to exercise the degree of skill and care
expected from somebody in their position. This is, however, a
subjective matter and a director is judged by the way he applies the
skills he personally possesses. Professionally qualified directors are
required to act with the skill and care expected from a member of
their profession.
Executive directors should devote themselves absolutely to the
business of the company. Although non-executive directors attend
board meetings on a intermittent basis, they should exercise
independent judgement. Directors may rely on their peers and staff
provided they are satisfied as to the competence, honesty and
reliability of the individual concerned. However, they must not
abandon all responsibility by delegation and have a duty to ensure
that they are informed as to the progress of tasks assigned.
3.3 Breach of duty
Failure by a director to fulfil his duties constitutes a breach and the
director may have an unlimited personal liability for any loss.
Professional liability insurance is available to indemnify a director
against liability to the company and third parties.
However, the court may find that the director has acted honestly and
reasonably and ought to be excused.
4.
The annual accounts must contain details of loans, quasi loans and
credit transactions with directors whether or not they are legal. If the
company fails to make this disclosure, the auditors must detail the
information in their report.
These disclosure requirements extend to transactions between the
company and persons or businesses connected with a director or the
company. The legal definition of connected person is very complex
but includes spouse, children, partners and companies in which the
director controls over 20% of the shares.
6.4 Substantial property transactions
Directors cannot acquire from or sell to the company non-cash assets
worth more than 100,000 or 10% of the companys net assets
without the shareholders consent. Transactions with a value of
2,000 or less are excluded from this rule. If approval in general
meeting is not obtained, the company has various remedies
depending upon the circumstances.
6.5 Material interest in contracts
A director who is interested in a contract or proposed contract with
the company must declare the nature of his interest at a meeting of
the directors. Although there is no prohibition regarding these
transactions, in most circumstances disclosure must be made in the
audited accounts.
These rules also apply to transactions between the company and
persons connected with a director.
7.
FINANCIAL PROBLEMS
The provisions of the Insolvency Act 1986 affect the day to day
responsibilities of directors, who may find themselves personally
liable for incompetent management should the company be
insolvent.
the value of its assets is less than its liabilities. The Act
includes contingent and prospective liabilities within the
definition, which makes this test of insolvency very difficult to
assess.
SUMMARY
The position of director carries responsibilities and onerous duties.
The law is designed to penalise those who act irresponsibly and
incompetently. However, a director who acts honestly and
conscientiously, seeking professional advice where necessary, should
have nothing to fear.
This document provides only an overview of the regulations in force
at the date of publication and no action should be taken without
consulting the detailed legislation or seeking professional advice.
Investor Words
Structured Finance : A service offered by many large financial
institutions for companies with very unique financing needs. These
financing needs usually don't match conventional financial products such
as a loan. Structured finance generally involves highly complex financial
transactions.
Working Capital : A company's current assets minus its current liabilities
- considered a good measure of both a company's efficiency and its
financial health. A positive working capital means that the company is
able to payoff their short-term liabilities. A negative working capital
means that a company currently is unable to meet their short-term
liabilities with their current assets (cash, accounts receivable, inventory).
Also known as "net working capital".
Trade Working Capital : The difference between current assets and
current liabilities directly associated with everyday business operations.
Vendor Financing : The lending of money by a company to one of its
customers so that the customer can buy products from it. By doing this,
the company increases its sales even though it is basically buying its own
products.
Waiver : The voluntary action of a person or party that removes that
person's or party's right or particular ability in an agreement. The waiver
can either be in written form or some form of action. A waiver essentially
removes a real or potential liability for the other party in the agreement.
Bull Market :
A financial market of a certain group of securities in
which prices are rising or are expected to rise. The term "bull market" is
most often used in respect to the stock market, but really can be applied
to anything that is traded, such as bonds, currencies, commodities, etc.
V=I/R
I=VxR
R=I/V
Cash Earnings Per Share - Cash EPS : A ratio derived from operating
cash flow divided by diluted shares outstanding.
Sometimes you may see cash EPS defined as either EPS plus
amortization of goodwill and other intangible items or net income plus
depreciation divided by outstanding shares.
Whatever the definition, the point of cash EPS is to be a stricter number
than other flavors of EPS because cash flow cannot be manipulated as
easily as net income can.
Cash Flow Statement : One of the quarterly financial reports any
publicly traded company is required to disclose to the SEC and the
public. The document provides aggregate data regarding all cash inflows
a company receives from both its ongoing operations and external
investment sources, as well as all cash outflows that pay for business
activities and investments during a given quarter.
Because public companies tend to use accrual accounting, the income
statements they release each quarter may not necessarily reflect changes
in their cash positions. For example, if a company lands a major contract,
this contract would be recognized as revenue (and therefore income), but
the company may not yet actually receive the cash from the contract until
a later date. While the company may be earning a profit in the eyes of
accountants (and paying income taxes on it), the company may, during
the quarter, actually end up with less cash than when it started the quarter.
Even profitable companies can fail to adequately manage their cash flow,
which is why the cash flow statement is important: it helps investors see
if a company is having trouble with cash.
Chapter 10 : Named after the U.S. bankruptcy code 10, chapter 10
discusses how a company can file for court protection.
Under Chapter 10 provisions a company is subjected to reorganization.
Chapter 11 : Named after the U.S. bankruptcy code 11, chapter 11 is a
form of bankruptcy that involves a reorganization of a debtor's business
Balanced Fund: A mutual fund that invests its assets into the money
market, bonds, preferred stock, and common stock with the intention to
provide both growth and income. Also known as an asset allocation fund.
A balanced fund is geared towards investors looking for a mixture of
safety, income, and capital appreciation. The amount the mutual fund
invests into each asset class usually must remain within a set minimum
and maximum.
Underwriter: A company or other entity that administers the public
issuance and distribution of securities from a corporation or other issuing
body. An underwriter works closely with the issuing body to determine
the offering price of the securities buys them from the issuer and sells
them to investors via the underwriter's distribution network.
Underwriters generally receive underwriting fees from their issuing
clients, but they also usually earn profits when selling the underwritten
shares to investors. However, underwriters assume the responsibility of
distributing a securities issue to the public. If they can't sell all of the
securities at the specified offering price, they may be forced to sell the
securities for less than they paid for them, or retain the securities
themselves.
Gross Domestic Product GDP: The monetary value of all the goods
and services produced by an economy over a specified period. It includes
consumption, government purchases, investments, and exports minus
imports.
This is perhaps the best indicator of the economic health of a country. It
is usually measured annually; although, monthly stats are also released.
Factor: A financial intermediary that purchases receivables from
companies.
2. In terms of mortgages, the ratio of principal outstanding to the original
balance.
The sale of accounts receivables is called factoring.
Code sharing: Code sharing is a business term which first originated in
the airline industry. It refers to a practice where a flight operated by an
airline is jointly marketed as a flight for one or more other airlines. Most
if not all major airlines nowadays have code sharing partnerships with
other airlines, and code sharing is a key feature of the major airline
alliances.
Going Concern: A term for a company that has the resources needed in
order to continue to operate. If a company is not a going concern, it
means the company has gone bankrupt.
Investopedia Says: In other words, this refers to a company's ability to
make enough money to stay afloat. For example, many dotcoms are no
longer a going concern.
Liquidation: When a business or firm is terminated or bankrupt, its assets
are sold and the proceeds pay creditors. Any leftovers are distributed to
shareholders.
2. Any transaction that offsets or closes out a long or short position.
Investopedia Says: Creditors liquidate assets to try and get as much of the
money owed to them as possible. They have first priority to whatever is
sold off. After creditors are paid, the shareholders get whatever is left
with preferred shareholders having preference over common
shareholders.
Lockup period: An interval during which an investment may not be sold.
In the case of an IPO, employees may not sell their shares for a period
time determined by the underwriter and usually lasting 180 days.
Rights issue: In equities, a rights issue can be made when a company
wants to issue new shares. The company gives existing shareholders the
right to purchase new shares in proportion to their existing holding, so as
to avoid dilution. Shares are usually offered at a discount, and most
investors take up the offer of a rights issue.
Depletion: The reduction of the value of the assets of a company engaged
in removing natural resources (as by mining) because of the decrease
over time of the natural resources (as coal) available in or on the land
being worked
The Calendar effect : The Calendar effect describes the tendency of
stocks to perform differently at different times, including performance
anomalies like the January effect, month-of-the-year effect, day-of-theweek effect, and holiday effect. While certainly not an indicator that
should be relied upon as the primary source for trading, systems like our
Options Trading System often do consider such effects when determining
whether to hold a position into a long weekend, through an options
expiration period, etc.
What is Anti Dumping Duty? : Where any article is exported from any
country or territory to India at less than its normal value then upon the
importation of such article to India the central Govt. may be notification
in the official gazette impose an anti dumping duty not exceeding the
margin of dumping in relation to such article. For purpose of
identification, assessment and collection of Anti Dumping Duty on
dumped articles and for determination of injury, the Govt. has appointed
Additional Secretary to the Govt. of India Ministry of Commerce as
designated Authority for purpose of above rules.
It is to be understood that imposition of Anti Dumping Duty is based on
Commodity to Commodity, country to country and suppliers in Exporting
countries.
Capital Budgeting Techniques : There are a number of capital
budgeting techniques available to an analyst. For our purposes, we will
only review net present value and internal rate of return.
Net Present Value : The Net Present Value technique involves
discounting net cash flows for a project, then subtracting net investment
from the discounted net cash flows. The result is called the Net Present
Value(NPV). If the net present value is positive, adopting the project
would add to the value of the company. Whether the company chooses to
do that will depend on their selection strategies. If they pick all projects
that add to the value of the company they would choose all projects with
positive net present values, even if that value is just $1. On the other
hand, if they have limited resources, they will rank the projects and pick
those with the highest NPV's.
Internal Rate of Return : The internal rate of return (IRR) on a project
is the rate of return where the cash inflows (net cash flows) equals the
cash outflows (net investment.) The easiest way to find IRR is to use a
financial calculator or spreadsheet program.
Portfolio Management : The art and science of making decisions about
investment mix and policy, matching investments to objectives, asset
allocation for individuals and institutions, and balancing risk vs.
performance.
Investopedia Says: Portfolio management is all about strengths,
weaknesses, opportunities, and threats in the choice of debt vs. equity,
domestic vs. international, growth vs. safety, and numerous other tradeoffs encountered in the attempt to maximize return at a given appetite for
risk
Ratios
for Financial Statement Analysis
Liquidity Analysis Ratios
Current Ratio
Current Assets
Current Ratio = -----------------------Current Liabilities
Quick Ratio
Quick Assets
Quick Ratio = ---------------------Current Liabilities
Quick Assets = Current Assets - Inventories
Net Working Capital Ratio
Net Working Capital
Net Working Capital Ratio = -------------------------Total Assets
Net Working Capital = Current Assets - Current Liabilities
Profitability Analysis Ratios
Return on Assets (ROA)
Net Income
Return on Assets (ROA) = ---------------------------------Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Return on Equity (ROE)
Net Income
Return on Equity (ROE) = -------------------------------------------Average Stockholders' Equity
Sales
-----------------------Average Total Assets
Going Public
The process of selling shares that were formerly privately held to new investors for the first
time. Otherwise known as an initial public offering (IPO).
Public Offering
The sale of equity shares or other financial instruments by an organization to the public in
order to raise funds for business expansion and investment. Public offerings of corporate
securities in the U.S. must be registered with and approved by the SEC and are normally
conducted by an investment underwriter
Deal Flow
The rate at which new proposals are flowing to the underwriters of an investment bank.
Proposals include initial public offerings (IPO) of securities, takeovers, acquisitions, and
mergers.
Undersubscribed
A situation in which the demand for an initial public offering of securities is less than the
number of shares issued. Also known as an "underbooking".
Hot IPO
An initial public offering that appeals to many investors and for which there is great demand.
Hot IPOs are often oversubscribed - meaning market demand far exceeds the supply of
shares - which results in the stock price surging as soon as it is offered on the market.
Preliminary Prospectus
A first draft registration statement filed by a firm prior to proceeding with an initial public
offering of securities. The document, filed with the Securities & Exchange Commission, is
intended to provide pertinent information to prospective shareholders about the company's
business description, management, strategic initiatives, financial statements and ownership
structure.
Closed-End Management
Company
An investment-management company that sells a limited number of shares to investors on an
exchange by way of an initial public offering. For investors to sell the shares they purchased
from the closed-end management company, there must be buyers willing to buy the
shares at a price determined by the market. The most common type of closed-end
management company is a closed-end mutual fund.
Baptism of Fire
A difficult situation that a company or individual experiences that will result in either success
or failure. Examples include Initial Public Offerings (IPOs), a new CEO hired to manage a
struggling company, and hostile takeover attempts.
Public
Assets that can be traded in a public market, such as the stock market.
Streetable
In the context of finance, a company that has a management team with enough strength and
experience to run a public company. It's imperative for Wall Street to have confidence in a
companys management; otherwise it will be difficult, if not impossible, for that company to go
public.
Installment Receipt
A debt or equity issuance in which the purchaser does not pay the full value of the issue up
front. In the purchase of an installment receipt, an initial payment is made to the issuer at the
time the issue closes; the remaining balance must be paid in installments, usually within a
two-year period . Although the purchaser has not paid the full value of the issue, he or she is
still entitled to full voting rights and dividends.
This type of debt or equity financing is most attractive to issuers that are unable to get an
attractive price for more traditional financing techniques, such as a traditional initial public
offering (IPO).
Cheap Stock
The illegal practice of issuing stock options at artificially low prices shortly before an initial
public offering.
Often underwriters will require a company to have more qualified management before they
can go public. They attract these qualified individuals by giving options with a low exercise
price.
IPO Lock-up
A legally binding contract between the underwriters and insiders of the company undergoing
an initial public offering (IPO). The contract prevents them from selling any shares of stock for
a specified period of time
When lock-ups expire, restricted people are permitted to sell their stock. This sometimes
results in a drastic drop in share price.
Grey Market
1. A market where a product is bought and sold outside of the manufacturer's authorized
trading channels.
2. The unofficial trading of a company's shares, usually before they are issued in an
initial public offering (IPO
Follow-On Offering
An offering of additional shares after a company has had an initial public offering
Godfather Offer
An irrefutable takeover offer made to a target company by an acquiring company.
The Godfather offer is usually extremely generous, so if the target company refuses,
shareholders may initiate lawsuits or other forms of revolt against the target company.
Like the Godfather in the famous movies, the bidding company is essentially making an offer
the target company cannot refuse.
Public Elevator
A grain elevator that, for an associated fee, stores the bulk grain of public clients.
Back Stop
The act of providing last-resort support or security in a securities offering for the unsubscribed
portion of shares. A company will try and raise capital through an issuance and to guarantee
the amount received through the issue, the company will get a back stop from an underwriter
or major shareholder to buy any of the unsubscribed shares
Tender Offer
An offer to purchase some or all of shareholders' shares in a corporation. The price offered is
usually at a premium to the market price.
Overshopped
The perception that a firms attempt to raise capital by selling equity or debt through a private
or public offering is an act of desperation. When a company's management 'overshops' a
financing deal, it leaves investment banks, bridge financiers, lenders and private equity
groups wondering why they should be the ones to take on the risk of financing a project that
others have rejected.
Gray Market
1. An unofficial market where new issues of shares are bought and sold before they
become officially available for trading on the stock exchange.
2. The sale or import of goods by unauthorized dealers.
Tracking Stock
1. Common stock issued by a parent company that tracks the performance of a
particular division without having claim on the assets of the division or the parent
company. Also known as "designer stock".
2. A type of security specifically designed to mirror the performance of a larger index.
Pitchbook
A sales book created by an investment bank/firm that details the main attributes of the firm.
The pitchbook is used by the firm's sales force to aid it with selling products and issues, and
generating new clients.