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Definition of Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost. Also called
Schedule of depreciation rates allowed for tax purposes.
An approximate measure of the liability of a plan in the event of a
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Total costs, explicit and implicit.
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
Legal document establishing a corporation and its structure and purpose.
The ratio of total assets to stockholder equity.
ratios that measure how effectively the firm is managing its assets.
A firm's required payout to the bondholders and to the stockholders expressed as a
The argument that expected indirect and direct bankruptcy costs offset the other
Placing one or more limits on the amount of new investment undertaken by a firm, either
Also called financial leverage ratios, these ratios compare debt to total capitalization
costs that increase with increases in the level of investment in current assets.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
The proportion of a firm's assets held as cash.
Common stock ratios
ratios that are designed to measure the relative claims of stockholders to earnings
A single centralized account into which funds collected at regional locations
Movement of cash from different lockbox locations into a single concentration
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned
The number of shares of common stock that the security holder will receive from
A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
Interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
ratios used to test the adequacy of cash flows generated through earnings for purposes of
Indicator of short-term debt paying ability. Determined by dividing current assets by current
Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.
Days' sales in inventory ratio
The average number of days' worth of sales that is held in inventory.
Indicator of financial leverage. Compares assets provided by creditors to assets provided
Total debt divided by total assets.
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided
The date on which a firm's directors meet and announce the date and amount of the next
Defined benefit plan
A pension plan in which the sponsor agrees to make specified dollar payments to
Dividend payout ratio
Percentage of earnings paid out as dividends.
The product of modified duration and the initial price.
Domestic International Sales Corporation (DISC)
A U.S. corporation that receives a tax incentive for
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.
Earnings retention ratio
Specialized banking institutions, authorized and chartered by the Federal Reserve Board
The duration calculated using the approximate duration formula for a bond with an
Equivalent annual benefit
The equivalent annual annuity for the net present value of an investment project.
Equivalent annual cost
The equivalent cost per year of owning an asset over its entire life.
The difference between the execution price of a security and the price that would have
The percentage of the assets that were spent to run a mutual fund (as of the last annual
The time when the option contract ceases to exist (expires).
An expiration cycle relates to the dates on which options on a particular security expire. A
The last day (in the case of American-style) or the only day (in the case of European-style)
Feasible target payout ratios
Payout ratios that are consistent with the availability of excess funds to make
Federal Deposit Insurance Corporation (FDIC)
A federal institution that insures bank deposits.
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
Financial leverage ratios
Related: capitalization ratios.
The result of dividing one financial statement item by another. ratios help analysts interpret
Fisher's separation theorem
The firm's choice of investments is separate from its owner's attitudes towards
Fixed asset turnover ratio
The ratio of sales to fixed assets.
A cost that is fixed in total for a given period of time and for given production levels.
Fixed-charge coverage ratio
A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
Flat benefit formula
Method used to determine a participant's benefits in a defined benefit plan by
Foreign Sales Corporation (FSC)
A special type of corporation created by the Tax Reform Act of 1984 that
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
The ratio of a pension plan's assets to its liabilities.
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from
Hard capital rationing
Capital rationing that under no circumstances can be violated.
Hedge ratio (delta)
The ratio of volatility of the portfolio to be hedged and the return of the volatility of the
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
Incremental costs and benefits
costs and benefits that would occur if a particular course of action were
Transaction costs that include the assessment of the investment merits of a financial asset.
Interest coverage ratio
The ratio of the earnings before interest and taxes to the annual interest expense. This
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
Measures of the relative contribution of stockholders and creditors, and of the firm's ability
ratios that measure a firm's ability to meet its short-term financial obligations on time.
Long-term debt ratio
The ratio of long-term debt to total capitalization.
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Low price-earnings ratio effect
The tendency of portfolios of stocks with a low price-earnings ratio to
ratios that measure a firm's ability to meet its short-term financial obligations on time.
The weighted-average term to maturity of the cash flows from the bond, where the
Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market timing costs
costs that arise from price movement of the stock during the time of the transaction
Market value ratios
ratios that relate the market price of the firm's common stock to selected financial
Market price of a share divided by book value per share.
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is
A modification of standard duration to account for the impact on duration of MBSs of
Mortgage-Backed Securities Clearing Corporation
A wholly owned subsidiary of the Midwest Stock
A firm that operates in more than one country.
A situation in which the price of the MBS moves in the same direction as interest rates.
Net benefit to leverage factor
A linear approximation of a factor, T*, that enables one to operationalize the
Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing
Purchase or sale of government securities by the monetary authorities to increase or
Open-market purchase operation
A systematic program of repurchasing shares of stock in market
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
The difference in the performance of an actual investment and a desired investment
P/E ratio (PE ratio / multiple)
Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25. 50 = 10
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