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Definition of Equity investment
Through equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock.
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 management style that de-emphasizes the significance of economic
Value of outstanding common shares at par, plus accumulated retained
Indicator of financial leverage. Compares assets provided by creditors to assets provided
A common term for convertible bonds because of their equity component and the
Automatic reinvestment of shareholder dividends in more shares of a
An international equity placement where the offering is split into two
Represents ownership interest in a firm. Also the residual dollar value of a futures trading account,
An agreement in which one party, for an upfront premium, agrees to compensate the other at
Also called a residual claim, a claim to a share of earnings after debt obligation have been
The simultaneous purchase of an equity floor and sale of an equity cap.
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
Expected return on investment
The return one can expect to earn on an investment. See: capital asset
Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with
Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.
Future investment opportunities
The options to identify additional, more valuable investment opportunities
GEMs (growing-equity mortgages)
Mortgages in which annual increases in monthly payments are used to
Guaranteed investment contract (GIC)
A pure investment product in which a life company agrees, for a
Related: financial analysts
Financial intermediaries who perform a variety of services, including aiding in the sale of
Decisions concerning the asset side of a firm's balance sheet, such as the decision to
Investment grade bonds
A bond that is assigned a rating in the top four categories by commercial credit
The revenue from a portfolio of invested assets.
Also called a portfolio manager and money manager, the individual who manages a
Investment product line (IPML)
The line of required returns for investment projects as a function of beta
Investment tax credit
Proportion of new capital investment that can be used to reduce a company's tax bill
A closed-end fund regulated by the investment Company Act of 1940. These funds have a
As a discipline, the study of financial securities, such as stocks and bonds, from the investor's
The balance of a margin account. Related: buying on margin, initial margin requirement.
investments that a regulated entity is permitted to make under the rules and regulations
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the
Long-term debt to equity ratio
A capitalization ratio comparing long-term debt to shareholders' equity.
Mutually exclusive investment decisions
investment decisions in which the acceptance of a project
Gross, or total, investment minus depreciation.
Net present value of future investments
The present value of the total sum of NPVs expected to result from
Passive investment strategy
See: passive management.
Passive investment management
Buying a well-diversified portfolio to represent a broad-based market
Preferred equity redemption stock (PERC)
Preferred stock that converts automatically into equity at a
The rate at which an investor assumes interest payments made on a debt security can be
The risk that proceeds received in the future will have to be reinvested at a lower potential
REIT (real estate investment trust)
Real estate investment trust, which is similar to a closed-end mutual
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages
Return on equity (ROE)
Indicator of profitability. Determined by dividing net income for the past 12
Return on investment (ROI)
Generally, book income as a proportion of net book value.
This is a company's total assets minus total liabilities. A company's net worth is the
Short-term investment services
Services that assist firms in making short-term investments.
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
The mirror image of the asset substitution problem, wherein stockholders refuse
Unit investment trust
Money invested in a portfolio whose composition is fixed for the life of the fund.
A portfolio of zero net value established by buying and shorting component
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:
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:
RETURN ON INVESTMENT (ROI)
In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole.
STOCKHOLDERS’ (OR OWNERS’) EQUITY
The value of the owners’ interests in a company.
Funds raised from shareholders.
A division or unit of an organization that is responsible for achieving an adequate return on
Return on investment (ROI)
The net profit after tax as a percentage of the shareholders’ investment in the business.
An account that reduces an equity account. An example is Treasury stock.
Amounts contributed to the company by the owners (contributed capital) plus the residual earnings of the business (retained earnings).
The total amount of contributed capital and retained earnings; synonymous with stockholders' equity.
The total amount of contributed capital and retained earnings; synonymous with shareholders’ equity.
capital investment analysis
Refers to various techniques and procedures
A widely used financial statement ratio to assess the
Refers to one of the two basic sources of capital for a business, the
Refers to the capital invested in a business by its shareowners
return on equity (ROE)
This key ratio, expressed as a percent, equals net
return on investment (ROI)
A very general concept that refers to some
stockholders' equity, statement of changes in
Although often considered
Cost of Equity
Same as the cost of common stock. Sometimes viewed as the
The commitment of funds (capital) in anticipation of an increased
Return on Common Equity Ratio
A measure of the percentage return earned on the value of the
a responsibility center in which the manager
a judgment about which assets will be
the process of gathering information
an assumption made about the rates of return that will be earned by intermediate cash flows from a capital project; NPV and PI assume reinvestment at the discount rate; IRR assumes reinvestment at the IRR
return on investment
a ratio that relates income generated
The difference between the total of all recorded assets and liabilities on the balance
The total of all capital contributions and retained earnings on a business’s
Bonds rated Baa or above by Moody’s or BBB or above by Standard & Poor’s.
Ownership. Common stock represents equity in a corporation.
Middleman between a corporation issuing new securities and the public. The middleman buys the securities issue outright and then resells it to customers. Also called an underwriter.
Expenditures on capital goods including new housing. Financial ''investments" and sales of existing assets are not included.
Investment Tax Credit
A reduction in taxes offered to firms to induce them to increase investment spending.
investment spending minus depreciation.
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