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Definition of Frictions
The "stickiness" in making transactions; the total hassle including time, effort, money, and tax
A merger or consolidation in which an acquirer purchases the acquiree's stock.
Publicly traded issues that may be collateralized by mortgages and MBSs.
The ratio of net income to net sales.
money after-tax rate of return minus the inflation rate.
hours, machine hours or volume of production
The second-largest stock exchange in the United States. It trades
information that is known to some people but not to other people.
A situation wherein participants in a transaction have different net tax rates.
An option is at-the-money if the strike price of the option is equal to the market price of the
Floating rate preferred stock, the dividend on which is adjusted every
taxes as a fraction of income; total taxes divided by total taxable income.
total taxes owed divided by total income.
The ratio of net income before taxes to net sales.
A method of securities distribution/ underwriting in which the securities firm agrees to sell
The beta of a stock is determined as follows:
BOOK VALUE OF COMMON STOCK
The theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals:
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Related: Premium payback period.
Buying the index
Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
Ownership shares issued by a business corporation. A business
The total amount of plant, equipment, and other physical capital.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow time-line
Line depicting the operating activities and cash flows for a firm over a particular period.
A transaction where exchange is immediate, as contrasted to a forward contract, which
These are securities that represent equity ownership in a company. Common shares let an
Shares of ownership sold to the public.
A financial security that represents an ownership claim on the
Ownership shares in a publicly held corporation.
That part of the capital stock of a corporation that carries voting rights and represents
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned
Common stock market
The market for trading equities, not including preferred stock.
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
Inventories owned by a company, but located on the premises
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder.
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to
Cost of Common Stock
The rate of return required by the investors in the common stock of
Cost of Preferred Stock
The rate of return required by the investors in the preferred stock of
Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely
Current Income Tax Expense
That portion of the total income tax provision that is based on
Current Tax Payment Act of 1943
A federal Act requiring employers to withhold income taxes from employee pay.
the time between the placement of an order to
the process of choosing among the alternative
Deferred Income Tax Expense
That portion of the total income tax provision that is the result
Deferred Tax Asset
Future tax benefit that results from (1) the origination of a temporary difference
Deferred Tax Liability
Future tax obligation that results from the origination of a temporary
A non-cash expense that provides a source of free cash flow. Amount allocated during the
The informal and frequently unauthorized retention of excess inventory on the shop floor, which is used as buffer safety stock.
Depreciation tax shield
The value of the tax write-off on depreciation of plant and equipment.
depreciation tax shield
Reduction in taxes attributable to the depreciation allowance.
Direct stock-purchase programs
The purchase by investors of securities directly from the issuer.
Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.
Agreement between two countries that taxes paid abroad can be offset against
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
Earnings per share of common stock
How much profit a company made on each share of common stock this year.
EBDDT - Earnings before depreciation and deferred taxes
This measure is used principally by
Effective Tax Rate
The total tax provision divided by pretax book income from continuing
Electronic Federal Tax Payment Systems (EFTPS)
An electronic funds transfer system used by businesses to remit taxes to the government.
Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's
Employee stock ownership plan (ESOP)
A company contributes to a trust fund that buys stock on behalf of
Employee Stock Ownership Plan (ESOP)
a profit-sharing compensation program in which investments are made in
Employee Stock Ownership Plan (ESOP)
A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.
employee time sheet
a source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
Expected value of perfect information
The expected value if the future uncertain outcomes could be known
Federal Unemployment Tax Act (FUTA)
A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
Fiat money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.
Low-cost, high-usage inventory items stored near the shop floor,
Foreign tax credit
Home country credit against domestic income tax for foreign taxes paid on foreign
The purchase of items exceeding the quantity levels indicated
Future-Oriented Financial Information
information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.
Publicly owned stock in a firm is replaced with complete equity ownership by a
Common stock of a company that has an opportunity to invest money and earn more than the
Heavenly Parachute Stock Option
A nonqualified stock option that allows a deceased option holder’s estate up to three years in which to exercise his or her
See money base.
Highly leveraged transaction (HLT)
Bank loan to a highly leveraged firm.
money that moves across country borders in response to interest rate differences and that moves
the amount of time spent in storing inventory or
Imputation tax system
Arrangement by which investors who receive a dividend also receive a tax credit for
A put option that has a strike price higher than the underlying futures price, or a call option
Incentive Stock Option
An option to purchase company stock that is not taxable
Common stock with a high dividend yield and few profitable investment opportunities.
What the business paid to the IRS.
A government tax on the income earned by an individual or corporation.
Income Tax Expense
See income tax provision.
Income Tax Provision
The expense deduction from pretax book income reported on the
taxes paid by consumers when they buy goods and services. A sales tax is an example.
The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.
bits of knowledge or fact that have been carefully
A situation involving information that is known to some, but not all, participants.
Information Coefficient (IC)
The correlation between predicted and actual stock returns, sometimes used to
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