Definition of Equity contribution agreement

Equity contribution agreement

An agreement to contribute equity to a project under certain specified
conditions.

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

Asset/equity ratio

The ratio of total assets to stockholder equity.

Bond agreement

A contract for privately placed debt.

Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.

Bretton Woods Agreement

An agreement signed by the original United Nations members in 1944 that
established the International Monetary Fund (IMF) and the post-World War II international monetary system
of fixed exchange rates.

Cash deficiency agreement

An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Concession agreement

An understanding between a company and the host government that specifies the
rules under which the company can operate locally.

Contribution margin

The difference between variable revenue and variable cost.

Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.

Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.

Defined contribution plan

A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.

Double-tax agreement

agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Dual syndicate equity offering

An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Equity

Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
assuming its liquidation at the going market price.

Equity cap

An agreement in which one party, for an upfront premium, agrees to compensate the other at
specific time periods if a designated stock market benchmark is greater than a predetermined level.

Equity claim

Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.

Equity collar

The simultaneous purchase of an equity floor and sale of an equity cap.

Equity floor

An agreement in which one party agrees to pay the other at specific time periods if a specific
stock market benchmark is less than a predetermined level.

Equity kicker

Used to refer to warrants because they are usually issued attached to privately placed bonds.

Equity market

Related:Stock market

Equity multiplier

Total assets divided by total common stockholders' equity; the amount of total assets per
dollar of stockholders' equity.

Equity options

Securities that give the holder the right to buy or sell a specified number of shares of stock, at
a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

Equity swap

A swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate swap.

Equity-linked policies

Related: Variable life

Equityholders

Those holding shares of the firm's equity.

Euroequity issues

Securities sold in the Euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. Euromarket.
Related: external market

Fiscal agency agreement

An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an
agent of the borrower.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Forward rate agreement (FRA)

agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.

GEMs (growing-equity mortgages)

Mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the
other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined
level (the strike rate).

Investor's equity

The balance of a margin account. Related: buying on margin, initial margin requirement.

Leveraged equity

Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
benefits and costs of using debt.

Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.

Note agreement

A contract for privately placed debt.

Preferred equity redemption stock (PERC)

Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.

Preferred stock agreement

A contract for preferred stock.

Purchase agreement

As used in connection with project financing, an agreement to purchase a specific
amount of project output per period.

Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.

Repurchase agreement

An agreement with a commitment by the seller (dealer) to buy a security back from
the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a
collateralized short-term loan, where the collateral may be a Treasury security, money market instrument,
federal agency security, or mortgage-backed security. From the purchaser (customer) perspective, the deal is
reported as a reverse Repo.

Return on equity (ROE)

Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).

Revolving credit agreement

A legal commitment wherein a bank promises to lend a customer up to a
specified maximum amount during a specified period.

Shareholders' equity

This is a company's total assets minus total liabilities. A company's net worth is the
same thing.

Smithsonian agreement

A revision to the Bretton Woods international monetary system which was signed at
the Smithsonian Institution in Washington, D.C., U.S.A., in December 1971. Included were a new set of par
values, widened bands to +/- 2.25% of par, and an increase in the official value of gold to US$38.00 per ounce.

Standby agreement

In a rights issue, agreement that the underwriter will purchase any stock not purchased by investors.

Standstill agreements

Contracts where the bidding firm in a takeover attempt agrees to limit its holdings
another firm.

Stockholder equity

Balance sheet item that includes the book value of ownership in the corporation. It
includes capital stock, paid in surplus, and retained earnings.

Stockholder's equity

The residual claims that stockholders have against a firm's assets, calculated by
subtracting total liabilities from total assets.

Stratified equity indexing

A method of constructing a replicating portfolio in which the stocks in the index
are classified into stratum, and each stratum is represented in the portfolio.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Throughput agreement

An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.

Tolling agreement

An agreement to put a specified amount of raw material per period through a particular
processing facility. For example, an agreement to process a specified amount of alumina into aluminum at a
particular aluminum plant.

Top-down equity management style

A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.

Total debt to equity ratio

A capitalization ratio comparing current liabilities plus long-term debt to
shareholders' equity.

RATE OF RETURN ON STOCKHOLDERS’ EQUITY

The percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it:
(Net income) / (Stockholders’ equity)

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:
(Total liabilities) / (Stockholders’ equity)

STOCKHOLDERS’ (OR OWNERS’) EQUITY

The value of the owners’ interests in a company.

Contribution

Also the difference between the selling price and variable costs, which can be expressed either per
unit or in total.

Equity

Funds raised from shareholders.

Throughput contribution

Sales revenue less the cost of materials.

Contra-equity account

An account that reduces an equity account. An example is Treasury stock.

Equity

Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).

Shareholders' equity

The total amount of contributed capital and retained earnings; synonymous with stockholders' equity.

Stockholders' equity

The total amount of contributed capital and retained earnings; synonymous with shareholders’ equity.

contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed
expenses.

debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.

equity

Refers to one of the two basic sources of capital for a business, the
other being debt (borrowed money). Most often, it is called owners’
equity because it refers to the capital used by a business that “belongs”
to the ownership interests in the business. Owners’ equity arises from
two quite distinct sources: capital invested by the owners in the business
and profit (net income) earned by the business that is not distributed to
its owners (called retained earnings). Owners’ equity in our highly developed
and sophisticated economic and legal system can be very complex—
involving stock options, financial derivatives of all kinds, different
classes of stock, convertible debt, and so on.

owners' equity

Refers to the capital invested in a business by its shareowners
plus the profit earned by the business that has not been distributed
to its shareowners, which is called retained earnings. Owners’
equity is one of the two basic sources of capital for a business, the other
being borrowed money, or debt. The book value, or value reported in a
balance sheet for owners’ equity, is not the market value of the business.
Rather, the balance sheet value reflects the historical amounts of capital
invested in the business by the owners over the years plus the accumulation
of yearly profits that were not paid out to owners.

return on equity (ROE)

This key ratio, expressed as a percent, equals net
income for the year divided by owners’ equity. ROE should be higher than
a business’s interest rate on debt because the owners take more risk.

stockholders' equity, statement of changes in

Although often considered
a financial statement, this is more in the nature of a supporting schedule
that summarizes in one place various changes in the owners’ equity
accounts of a business during the period—including the issuance and
retirement of capital stock shares, cash dividends, and other transactions
affecting owners’ equity. This statement (schedule) is very helpful
when a business has more than one class of stock shares outstanding
and when a variety of events occurred during the year that changed its
owners’ equity accounts.

Cost of Equity

Same as the cost of common stock. Sometimes viewed as the
rate of return stockholders require to maintain the market value of
the company's common stock.

Return on Common Equity Ratio

A measure of the percentage return earned on the value of the
common equity invested in the company. It is calculated by
dividing the net income available for distribution to shareholders
by the book value of the common equity.

contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits

contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales

General Agreement

on Tariffs and Trade (GATT) a treaty
among many nations setting standards for tariffs and trade
for signees

North American Free Trade Agreement (NAFTA)

an agreement among Canada, Mexico, and the United States establishing the North American Free Trade Zone, with a resulting reduction in trade barriers

product contribution margin

the difference between selling price and variable cost of goods sold

total contribution margin

see contribution margin

Contribution margin

The margin that results when variable production costs are subtracted
from revenue. It is most useful for making incremental pricing decisions
where a company must cover its variable costs, though perhaps not all of its fixed
costs.

Equity

The difference between the total of all recorded assets and liabilities on the balance
sheet.

Owners' equity

The total of all capital contributions and retained earnings on a business’s
balance sheet.

Equity

Ownership. Common stock represents equity in a corporation.

Contribution Rate

The percentage tax charged by a state to an employer to
cover its share of the state unemployment insurance fund.

Defined Contribution Plan

A qualified retirement plan under which the employer
is liable for a payment into the plan of a specific size, but not for the size
of the resulting payments from the plan to participants.

Federal Insurance Contributions Act of 1935 (FICA)

A federal Act authorizing the government to collect Social Security and Medicare payroll taxes.

Self-Employment Contributions Act (SECA)

A federal Act requiring self-employed business owners to pay the same total tax rates for Social Security and
Medicare taxes that are split between employees and employers under the Federal Insurance contributions Act.

Totalization Agreement

An agreement between countries whereby an employee only has to pay Social Security taxes to the country in which he or she is working

Equity Method

Accounting method for an equity security in cases where the investor has sufficient
voting interest to have significant influence over the operating and financial policies of an
investee.

Equity Security

An ownership interest in an enterprise, including preferred and common stock.

Shareholders' Equity

The residual interest or owners' claims on the assets of a corporation
that remain after deducting its liabilities.

Buy/Sell Agreement

This 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.

Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Confidentiality Agreement

A 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.

Debt/Equity Ratio

A comparison of debt to equity in a company's capital structure.

Equity

The net worth of a business, consisting of capital stock, capital (or paid-in) surplus (or retained earnings), and, occasionally, certain net worth reserves. Common equity is that part of the total net worth belonging to the common shareholders. Total equity includes preferred shareholders. The terms common stock, net worth, and common equity are frequently used interchangeably.

Equity Buy-Back

Refers to the investors percentage ownership of a company that can be re-acquired by the company, usually at a pre-determined amount.

Purchase Agreement

This legal document records the final understanding of the parties with respect to the proposed transaction.

Quasi-Equity

Funds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital.

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