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Definition of Debt
Borrowings from financiers.
Funds owed to another entity.
An offset to the accounts receivable balance, against which
An account receivable that cannot be collected.
The amount of accounts receivable that is not expected to be collected.
Refers to accounts receivable from credit sales to customers
The cost of debt (bonds, loans, etc.) that a company is charged for
Ability to borrow. The amount a firm can borrow up to the point where the firm value no
An assessment of ability and willingness to repay a loan from anticipated future cash flow or other sources.
Money, goods or services that someone is obligated to pay someone else in accordance with an expressed or implied agreement. debt may or may not be secured.
The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
Indicator of financial leverage. Compares assets provided by creditors to assets provided
A comparison of debt to equity in a company's capital structure.
Raising loan capital through the creation of debt by issuing a form of paper evidencing amounts owed and payable on specified dates or on demand.
An asset requiring fixed dollar payments, such as a government or corporate bond.
Any financial asset corresponding to a debt, such as a bond or a treasury bill.
The amplification of the return earned on equity when an investment or firm is financed
A bond covenant that restricts in some way the firm's ability to incur additional indebtedness.
The market for trading debt instruments.
Total debt divided by total assets.
The percentage of debt that is used in the total capitalization of a
Reducing the principal and/or interest payments on LDC loans.
IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
A security representing a debt relationship with an enterprise, including a government
Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided
Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm
A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
A widely used financial statement ratio to assess the
Debtor in possession
A firm that is continuing to operate under Chapter 11 bankruptcy process.
New debt obtained by a firm during the Chapter 11 bankruptcy process.
Sales to customers who have bought goods or services on credit but who have not yet paid their debt.
Firm's net value of debt
Total firm value minus total firm debt.
debt maturing after more than one year.
debt with more than 1 year remaining to maturity.
Interest rate on debt
The firm's cost of debt capital.
Junior debt (subordinate debt)
debt whose holders have a claim on the firm's assets only after senior
An obligation having a maturity of more than one year from the date it was issued. Also
A debt for which payments will be required for a period of more than
Long Term Debt
Liability due in a year or more.
Indicator of financial leverage. Shows long-term debt as a proportion of the
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.
Refers to non-conventional debt that has a greater element of risk than secured debt but has less risk than equity.
MM's proposition I (debt irrelevance proposition)
The value of a firm is unaffected by its capital structure.
Monetizing the Debt
See printing money.
The debt owed by the government as a result of earlier borrowing to finance budget deficits. That part of the debt not held by the central bank is the publically held national debt.
Original issue discount debt (OID debt)
debt that is initially offered at a price below par.
See national debt.
Publicly Held National Debt
See national debt.
RATIO OF DEBT TO STOCKHOLDERS’ EQUITY
A ratio that shows which group—creditors or stockholders—has the biggest stake in or the most control of a company:
debt that, in the event of default, has first claim on specified assets.
debt that has first claim on specified collateral in the event of default.
debt that, in the event of bankruptcy, must be repaid before subordinated debt receives any payment.
Are debt instruments that provide financing, take primary security against either specific or all assets of the borrower, have fixed terms of repayment and charge fixed or floating interest rates.
debt that has been customized for the buyer, often by incorporating unusual options.
debt over which senior debt takes priority. In the event of bankruptcy, subordinated
debt that may be repaid in bankruptcy only after senior debt is paid.
debt instruments that provide financing for acquisitions, expansion and restructuring, take secondary security against assets, have fixed or flexible terms of repayment and charge fixed or floating interest rates.
Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to
Total Debt to Total Assets Ratio
See debt ratio
debt maturing within one year (short-term debt). See: funded debt.
debt that does not identify specific assets that can be taken over by the debtholder in case of default.
Clause causing repayment of a debt, if specified events occur or are not met.
Short-term, non-interest-bearing debts owed to a
The amount of interest accumulated on a debt security between
A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
acid test ratio (also called the quick ratio)
The sum of cash, accounts receivable, and short-term marketable
Agency cost view
The argument that specifies that the various agency costs create a complex environment in
This term has two quite different meanings. First, it may
The reduction of debt by regular payments of interest and principal sufficient to pay off a loan by maturity.
Amortization (Credit Insurance)
Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.
Extent to which a company's net assets cover a particular debt obligation, class of preferred stock, or equity position.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.
A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
The reorganization or liquidation of a firm that cannot pay its debts.
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The argument that expected bankruptcy costs preclude firms from being financed entirely
The requirement that a claim holder voting against a plan of reorganization
Bonds are debt and are issued for a period of more than one year. The U.S. government, local
A long-term debt instrument in which the issuer (borrower) is
A debt security issued by a government or company. You receive regular interest payments at specified rates while you hold the bond and you receive the face value when it matures. Short-term bonds mature in less than five years; medium-term bonds mature in six to ten years; and long-term bonds mature in eleven years or greater.
A contract for privately placed debt.
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A
Bonds issued by emerging countries under a debt reduction plan.
a. An option to buy a certain quantity of a stock or commodity for a
A very broad term rooted in economic theory and referring to
The total of debt and equity, i.e. the total funds in the business.
Refers to investments by a business in long-term
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
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