Definition of Flow-through basis
An account for the investment credit to show all income statement benefits of the credit
in the year of acquisition, rather than spreading them over the life of the asset acquired.
Well, frankly, accrual is not a good descriptive
term. Perhaps the best way to begin is to mention that accrual-basis
accounting is much more than cash-basis accounting. Recording only the
cash receipts and cash disbursement of a business would be grossly
inadequate. A business has many assets other than cash, as well as
many liabilities, that must be recorded. Measuring profit for a period as
the difference between cash inflows from sales and cash outflows for
expenses would be wrong, and in fact is not allowed for most businesses
by the income tax law. For management, income tax, and financial
reporting purposes, a business needs a comprehensive record-keeping
system—one that recognizes, records, and reports all the assets and liabilities
of a business. This all-inclusive scope of financial record keeping
is referred to as accrual-basis accounting. Accrual-basis accounting
records sales revenue when sales are made (though cash is received
before or after the sales) and records expenses when costs are incurred
(though cash is paid before or after expenses are recorded). Established
financial reporting standards require that profit for a period
must be recorded using accrual-basis accounting methods. Also, these
authoritative standards require that in reporting its financial condition a
business must use accrual-basis accounting.
Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.
A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.
Mortgage pass-through securities whose principal and interest payments are
guaranteed by government agencies, such as the Government National Mortgage Association ("Ginnie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae").
A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.
Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.
In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage
point of yield in bonds equals 100 basis points. basis points also are used for interest rates. An interest rate of
5% is 50 basis points greater than an interest rate of 4.5%.
One one-hundredth of one percent
One hundredth of one percentage point, or 0.0001.
One one-hundredth of a percentage point, used to express variations in yields. For example, the difference between 5.36 percent and 5.38 percent is 2 basis points.
Price expressed in terms of yield to maturity or annual rate of return.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
The method used for computing the bond-equivalent yield.
Purchase by foreigners of our assets (capital inflows) or our purchase of foreign assets (capital outflows).
In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.
An obvious but at the same time elusive term that refers to cash
inflows and outflows during a period. But the specific sources and uses
of cash flows are not clear in this general term. The statement of cash
flows, which is one of the three primary financial statements of a business,
classifies cash flows into three types: those from operating activities
(sales and expenses, or profit-making operations), those from
investing activities, and those from financing activities. Sometimes the
term cash flow is used as shorthand for cash flow from profit (i.e., cash
flow from operating activities).
the receipt or disbursement of cash; when related
to capital budgeting, cash flows arise from the purchase,
operation, and disposition of a capital asset
Cash received and paid over time.
In investments, NET INCOME plus DEPRECIATION and other noncash charges. In this sense, it is synonymous with CASH EARNINGS. Investors focus on cash flow from operations because of their concern with a firm's ability to pay dividends.
Cash flow after interest and taxes
Net income plus depreciation.
Cash-flow break-even point
The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.
Cash Flow Forecast
An estimate of the timing and amount of a company's inflows and outflows of money measured over a specific period of time typically monthly for one to two years then annually for an additional one to three years.
cash flow from operating activities, or cash flow from profit
This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
which the manager matches the maturity of each element in the liability stream, working backward from the
last liability to assure all required cash flows.
Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.
Cash Flow Provided by Operating Activities
With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
Cash Flow Provided or Used from Financing Activities
Cash receipts and payments involving
liability and stockholders' equity items, including obtaining cash from creditors and repaying
the amounts borrowed and obtaining capital from owners and providing them with a return on,
and a return of, their investments.
Cash Flow Provided or Used from Investing Activities
Cash receipts and payments involving
long-term assets, including making and collecting loans and acquiring and disposing of
investments and productive long-lived assets.
A statement that shows where a company’s cash came from and where it went for a period of time, such as a year.
Cash Flow statement
A financial report that shows the movement in cash for a business during an accounting period.
Cash flow time-line
Line depicting the operating activities and cash flows for a firm over a particular period.
Cash Flow–to–Income Ratio (CFI)
Adjusted cash flow provided by continuing operations
divided by adjusted income from continuing operations.
CASH FLOWS FROM FINANCING ACTIVITIES
A section on the cash-flow statement that shows how much cash a company raised by selling stocks or bonds this year and how much was paid out for cash dividends and other finance-related obligations.
CASH FLOWS FROM INVESTING ACTIVITIES
A section on the cashflow statement that shows how much cash came in and went out because of various investing activities like purchasing machinery.
CASH FLOWS FROM OPERATIONS
A section on the cash-flow Stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business.
Income payments to factors of production are spent to buy output. The receipts from these sales are used to pay factors of production, creating a circular flow of income.
Also called private-label pass-throughs, any mortgage pass-through security not
guaranteed by government agencies. Compare agency pass-throughs.
An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
Selling something on a discounted basis is selling below what its value will be at maturity,
so that the difference makes up all or part of the interest.
Discounted cash flow
A technique that determines the present value of future cash
flows by applying a rate to each periodic cash flow that is derived from the cost of
capital. Multiplying this discount by each future cash flow results in an amount that
is the present value of all the future cash flows.
Discounted Cash Flow
Techniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project.
Discounted cash flow (DCF)
Future cash flows multiplied by discount factors to obtain present values.
Discounted cash flow (DCF)
A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital.
discounted cash flow (DCF)
Refers to a capital investment analysis technique
that discounts, or scales down, the future cash returns from an
investment based on the cost-of-capital rate for the business. In essence,
each future return is downsized to take into account the cost of capital
from the start of the investment until the future point in time when the
return is received. Present value (PV) is the amount resulting from discounting
the future returns. Present value is subtracted from the entry
cost of the investment to determine net present value (NPV). The net
present value is positive if the present value is more than the entry cost,
which signals that the investment would earn more than the cost-ofcapital
rate. If the entry cost is more than the present value, the net
present value is negative, which means that the investment would earn
less than the business’s cost-of-capital rate.
Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment
projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.
Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.
Expected future cash flows
Projected future cash flows associated with an asset of decision.
Fixed price basis
An offering of securities at a fixed price.
The practice of reporting to shareholders using straight-line depreciation and
accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to the
financial statement prepared for shareholders.
Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.
A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.
free cash flow
Generally speaking, this term refers to cash flow from
profit (cash flow from operating activities, to use the more formal term).
The underlying idea is that a business is free to do what it wants with its
cash flow from profit. However, a business usually has many ongoing
commitments and demands on this cash flow, so it may not actually be
free to decide what do with this source of cash. Warning: This term is
not officially defined anywhere and different persons use the term to
mean different things. Pay particular attention to how an author or
speaker is using the term.
Free Cash Flow
The funds available for distribution to the capital providers of the
company after investments inside the company have been made
Free cash flows
Cash not required for operations or for reinvestment. Often defined as earnings before
interest (often obtained from operating income line on the income statement) less capital expenditures less the
change in working capital.
Fully modified pass-throughs
Agency pass-throughs that guarantee the timely payment of both interest and
principal. Related: modified pass-throughs
Functional currency As defined by FASB No. 52, an affiliate's functional currency is the currency of the
primary economic environment in which the affiliate generates and expends cash.
Incremental cash flows
Difference between the firm's cash flows with and without a project.
Agency pass-throughs that guarantee (1) timely interest payments and (2) principal
payments as collected, but no later than a specified time after they are due. Related: fully modified passthroughs
Mortgage pass-through security
Also called a passthrough, a security created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the security holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the secondary market.
negative cash flow
The cash flow from the operating activities of a business
can be negative, which means that its cash balance decreased from
its sales and expense activities during the period. When a business is
operating at a loss instead of making a profit, its cash outflows for
expenses very likely may be more than its cash inflow from sales. Even
when a business makes a profit for the period, its cash inflow from sales
could be considerably less than the sales revenue recorded for the
period, thus causing a negative cash flow for the period. Caution: This
term also is used for certain types of investments in which the net cash
flow from all sources and uses is negative. For example, investors in
rental real estate properties often use the term to mean that the cash
inflow from rental income is less than all cash outflows during the
period, including payments on the mortgage loan on the property.
Nominal cash flow
A cash flow expressed in nominal terms if the actual dollars to be received or paid out are given.
NPV (net present value of cash flows)
Same as PV, but usually includes a subtraction for an initial cash outlay.
Operating cash flow
Earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.
operating cash flow
See cash flow from operating activities.
Operating Cash Flow
Income available after the payment of taxes, plus the value of the
operations flow document
a document listing all operations
necessary to produce one unit of product (or perform
a specific service) and the corresponding time allowed
for each operation
Pass-through coupon rate
The interest rate paid on a securitized pool of assets, which is less than the rate
paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.
The net interest rate passed through to investors after deducting servicing, management,
and guarantee fees from the gross mortgage coupon.
A pool of fixed-income securities backed by a package of assets (i.e. mortgages)
where the holder receives the principal and interest payments. Related: mortgage pass-through security
Payable through drafts
A method of making payment that is used to maintain control over payments made
on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft
to the payer, which must approve it and return it to the bank before payment can be received.
Adjustment mechanism under the classical gold standard whereby
disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of
specie (gold coins) that would act to equalize prices across countries and automatically bring international
payments back in balance.
Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in
the price of the bond if the required yield changes by one basis point.
Related: Conventional pass-throughs.
Process flow production
A production configuration in which products are continually
manufactured with minimal pauses or queuing.
An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.
PV (present value of cash flows)
the value in today’s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .
Real cash flow
A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
flow is given.
Scheduled cash flows
The mortgage principal and interest payments due to be paid under the terms of the
mortgage not including possible prepayments.
Statement of cash flows
A financial statement showing a firm's cash receipts and cash payments during a
Statement of Cash Flows
One of the basic financial statements; it lists the cash inflows and cash outflows of the company, grouped into the categories of operating activities, financing activities, and investing activities. The Statement of Cash flows is prepared for a specified period of time.
statement of cash flows
One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the business’s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income
Statement of cash flows
Part of the financial statements; it summarizes an entity’s cash
inflows and outflows in relation to financing, operating, and investing activities.
statement of cash flows
Financial statement that shows the firm’s cash receipts and cash payments over a period of time.
A method of cash budgeting that is organized along the lines of the statement of cash flows.
the total completed and sold output of a plant during a period
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
Sales revenue less the cost of materials.
Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).
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