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Financial Terms | |
Due Diligence |
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Definition of Due DiligenceDue DiligenceThe process of systematically evaluating information, to identify risks and issues relating to a proposed transaction.(i.e. verify that information is what it is proposed to be).
Related Terms:Comprehensive due diligence investigationThe investigation of a firm's business in conjunction with a Letter of IntentA document signifying genuine interest in reaching a final agreement, conditional upon the results of more detailed due diligence and negotiations. Annuity dueAn annuity with n payments, wherein the first payment is made at time t = 0 and the last Annuity DueAnnuity where the payments are to be made at the beginning of annuity duea series of equal cash flows being received or paid at the beginning of a period annuity dueLevel stream of cash flows starting immediately. Due billAn instrument evidencing the obligation of a seller to deliver securities sold to the buyer. ![]() Accumulated Other Comprehensive IncomeCumulative gains or losses reported in shareholders' Letter of commentA communication to the firm from the SEC that suggests changes to its registration Letter of credit (L/C)A form of guarantee of payment issued by a bank used to guarantee the payment of Letter stockPrivately placed common stock, so-called because the SEC requires a letter from the purchaser Letters of CreditA letter of credit is a guarantee of payment by a bank (issuing institution)to a third party for a specific amount of money, if certain conditions are met. Shareholders' letterA section of an annual report where one can find jargon-free discussions by Side LetterA separate agreement that is used to clarify or modify the terms of a sales agreement. Accrued interestThe accumulated coupon interest earned but not yet paid to the seller of a bond by the Accrued InterestThe amount of interest accumulated on a debt security between ![]() Accrued InterestThe amount of interest owing but not paid. Affirmative covenantA bond covenant that specifies certain actions the firm must take. Amortizing interest rate swapSwap in which the principal or national amount rises (falls) as interest rates Annuity dueAn annuity with n payments, wherein the first payment is made at time t = 0 and the last Annuity DueAnnuity where the payments are to be made at the beginning of annuity duea series of equal cash flows being received or paid at the beginning of a period annuity dueLevel stream of cash flows starting immediately. Asset-Backed SecuritiesBond or note secured by assets of company. Asymmetric informationinformation that is known to some people but not to other people. Base interest rateRelated: Benchmark interest rate. Basic business strategiesKey strategies a firm intends to pursue in carrying out its business plan. ![]() Bellwether issuesRelated:Benchmark issues. Benchmark interest rateAlso called the base interest rate, it is the minimum interest rate investors will Benchmark issuesAlso called on-the-run or current coupon issues or bellwether issues. In the secondary Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Bond agreementA contract for privately placed debt. Book-entry securitiesThe Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the Bretton Woods AgreementAn agreement signed by the original United Nations members in 1944 that Business cycleRepetitive cycles of economic expansion and recession. Business CycleFluctuations of GDP around its long-run trend, consisting of recession, trough, expansion, and peak. Business Expansion InvestmentThe use of capital to create more money through the addition of fixed assets or through income producing vehicles. Business failureA business that has terminated with a loss to creditors. business intelligence (BI) systema formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about business process reengineering (BPR)the process of combining information technology to create new and more effective Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic business-value-added activityan activity that is necessary for the operation of the business but for which a customer would not want to pay Buy/Sell AgreementThis is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement. Capitalized interestinterest that is not immediately expensed, but rather is considered as an asset and is then Capitalized Interestinterest incurred during the construction period on monies invested in Cash deficiency agreementAn agreement to invest cash in a project to the extent required to cover any cash Cash flow after interest and taxesNet income plus depreciation. Cash transactionA transaction where exchange is immediate, as contrasted to a forward contract, which Changes in Financial PositionSources of funds internally provided from operations that alter a company's chief financial officer (CFO)Officer who oversees the treasurer and controller and sets overall financial strategy. Commercial Business Loan (Credit Insurance)An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes. Competitive offeringAn offering of securities through competitive bidding. Compound interestinterest paid on previously earned interest as well as on the principal. Compound Interestinterest paid on principal and on interest earned in previous compound interesta method of determining interest in which interest that was earned in prior periods is added to the original investment so that, in each successive period, interest is earned on both principal and interest compound interestinterest earned on interest. Compound Interestinterest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest. Concession agreementAn understanding between a company and the host government that specifies the Conditional BuyerOne of two parties to a conditional sale agreement, the other being the conditional seller. Conditional SaleA type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made. Conditional Sale AgreementAn agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands. Conditional sales contractsSimilar to equipment trust certificates except that the lender is either the Conditional SellerOne of two parties to a conditional sale agreement, the other being the conditional buyer. Confidentiality AgreementA legal document whereby the one party, usually the prospective investor, pledges to keep strictly confidential, and return on request, any and all information provided by the entrepreneur seeking funding. Confirmationhe written statement that follows any "trade" in the securities markets. Confirmation is issued Corporate financial managementThe application of financial principals within a corporation to create and Corporate financial planningfinancial planning conducted by a firm that encompasses preparation of both Corporate processing floatThe time that elapses between receipt of payment from a customer and the cost-benefit analysis the analytical process of comparing therelative costs and benefits that result from a specific course costs of financial distressCosts arising from bankruptcy or distorted business decisions before bankruptcy. Country financial riskThe ability of the national economy to generate enough foreign exchange to meet CouponThe periodic interest payment made to the bondholders during the life of the bond. CouponDetachable certificate attached to a bond that shows the amount of couponThe interest payments paid to the bondholder. CouponThe annual interest payment associated with a bond. Coupon BondAny bond with a coupon. Contrast with discount bond. Coupon / CouponsThe periodic interest payment(s) made by the issuer of a bond Coupon datesThe dates when the coupons are paid. Typically a bond pays Coupon equivalent yieldTrue interest cost expressed on the basis of a 365-day year. Coupon paymentsA bond's interest payments. Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Coupon RateThe rate of interest paid on a debt security. Generally stated on an Coupon rateThe nominal interest rate that the issuer promises to pay the coupon rateAnnual interest payment as a percentage of face value. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Current couponA bond selling at or close to par, that is, a bond with a coupon close to the yields currently Current-coupon issuesRelated: Benchmark issues Daily Interest AccumulationAccount in which interest is accrued daily and credited to the account at the end of a specified time. Debt securitiesIOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and Detailed ProgramDesign In software development, a detailed step-by-step plan for completing the software. Diffusion processA conception of the way a stock's price changes that assumes that the price takes on all Discount securitiesNon-interest-bearing money market instruments that are issued at a discount and Documented discount notesCommercial paper backed by normal bank lines plus a letter of credit from a Double-tax agreementagreement between two countries that taxes paid abroad can be offset against Dual-currency issuesEurobonds that pay coupon interest in one currency but pay the principal in a different Dual syndicate equity offeringAn international equity placement where the offering is split into two Due billAn instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Dupont system of financial controlHighlights the fact that return on assets (ROA) can be expressed in terms earnings before interest and income tax (EBIT)A measure of profit that Earnings before interest and taxes (EBIT)A financial measure defined as revenues less cost of goods sold Earnings before interest and taxes (EBIT)The operating profit before deducting interest and tax. Earnings before interest, taxes, depreciation and amortization (EBITDA)The operating profit before deducting interest, tax, depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working Effective annual interest rateAn annual measure of the time value of money that fully reflects the effects of effective annual interest rateinterest rate that is annualized using compound interest. Effective Interest RateThe rate of interest actually earned on an investment. It is Emerging Issues Task Force (EITF)A special committee of the financial Accounting Standards Board established to reach consensus of how to account for new and unusual financial transactions that have the potential for creating differing financial reporting practices. Emerging Issues Task Force (EITF)A separate committee within the financial Accounting Standards Board composed of 13 members representing CPA firms and preparers of financial statements Equilibrium rate of interestThe interest rate that clears the market. Also called the market-clearing interest Equity contribution agreementAn agreement to contribute equity to a project under certain specified Euroequity issuessecurities sold in the Euromarket. That is, securities initially sold to investors Exempt securitiesInstruments exempt from the registration requirements of the securities Act of 1933 or the Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |