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Definition of Equity cap
An agreement in which one party, for an upfront premium, agrees to compensate the other at
Amounts of directly contributed equity capital in excess of the par value.
The simultaneous purchase of an equity floor and sale of an equity cap.
A company's first sale of stock to the public. Securities offered in an IPO are
Refers to the interest cost of debt capital used by a business
The equity (ownership) capital of a business can serve
Weighted means that the proportions of
The mix of the various types of debt and equity capital maintained by a firm. The more debt capital a firm has in its capital structure, the more highly leveraged the firm is considered to be.
The discount rate that reflects only the business risks of a project and abstracts from the
The ratio of total assets to stockholder equity.
A firm's required payout to the bondholders and to the stockholders expressed as a
A management style that de-emphasizes the significance of economic
An upper limit on the interest rate on a floating-rate note.
Money invested in a firm.
Net result of public and private international investment and lending activities.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
A firm's set of planned capital expenditures.
The process of choosing the firm's long-term capital assets.
Amount used during a particular period to acquire or improve long-term assets such as
The transfer of capital abroad in response to fears of political risk.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
Capital gains yield
The price change portion of a stock's return.
A lease obligation that has to be capitalized on the balance sheet.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Placing one or more limits on the amount of new investment undertaken by a firm, either
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
The debt and/or equity mix that fund a firm's assets.
A method of constructing a replicating portfolio in which the manager purchases a
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
Interest that is not immediately expensed, but rather is considered as an asset and is then
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Complete capital market
A market in which there is a distinct marketable security for each and every
Cost of capital
The required return for a capital budgeting project.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
Indicator of financial leverage. Compares assets provided by creditors to assets provided
Ability to borrow. The amount a firm can borrow up to the point where the firm value no
Total par value (number of shares issued, multiplied by the par value of each share). Also
A common term for convertible bonds because of their equity component and the
Dual syndicate equity offering
An international equity placement where the offering is split into two
Efficient capital market
A market in which new information is very quickly reflected accurately in share
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
Also called a residual claim, a claim to a share of earnings after debt obligation have been
Equity contribution agreement
An agreement to contribute equity to a project under certain specified
An agreement in which one party agrees to pay the other at specific time periods if a specific
Used to refer to warrants because they are usually issued attached to privately placed bonds.
Total assets divided by total common stockholders' equity; the amount of total assets per
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
A swap in which the cash flows that are exchanged are based on the total return on some stock
Related: Variable life
Those holding shares of the firm's equity.
Securities sold in the Euromarket. That is, securities initially sold to investors
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
GEMs (growing-equity mortgages)
Mortgages in which annual increases in monthly payments are used to
Hard capital rationing
capital rationing that under no circumstances can be violated.
The unique capabilities and expertise of individuals.
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
The balance of a margin account. Related: buying on margin, initial margin requirement.
Issued share capital
Total amount of shares that are in issue. Related: outstanding shares.
Value at which a company's shares are recorded in its books.
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
Indicator of financial leverage. Shows long-term debt as a proportion of the
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
The total dollar value of all outstanding shares. Computed as shares times current
Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate
A version of the capital asset pricing model derived by Merton that includes extramarket
Net working capital
Current assets minus current liabilities. Often simply referred to as working capital.
Nondiversifiability of human capital
The difficulty of diversifying one's human capital (the unique
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
In the balance of payments, other capital is a residual category that groups all the capital
Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.
Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially
Perfect capital market
A market in which there are never any arbitrage opportunities.
Perfect market view (of capital structure)
Analysis of a firm's capital structure decision, which shows the
Personal tax view (of capital structure)
The argument that the difference in personal tax rates between
Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of
Planned capital expenditure program
capital expenditure program as outlined in the corporate financial plan.
Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a
Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure
Wealth that can be represented in financial terms, such as savings account balances, financial
Return on equity (ROE)
Indicator of profitability. Determined by dividing net income for the past 12
This is a company's total assets minus total liabilities. A company's net worth is the
"Soft" Capital Rationing
capital rationing that under certain circumstances can be violated or even viewed
Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of the
Balance sheet item that includes the book value of ownership in the corporation. It
The residual claims that stockholders have against a firm's assets, calculated by
Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index
Top-down equity management style
A management style that begins with an assessment of the overall
Total debt to equity ratio
A capitalization ratio comparing current liabilities plus long-term debt to
An investment in a start-up business that is perceived to have excellent growth prospects but
Weighted average cost of capital
Expected return on a portfolio of all the firm's securities. Used as a hurdle
Defined as the difference in current assets and current liabilities (excluding short-term
Working capital management
The management of current assets and current liabilities to maximize shortterm liquidity.
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