Definition of Inductive reasoning

Inductive reasoning

The attempt to use information about a specific situation to draw a conclusion.

Deductive reasoning

The use of general fact to provide accurate information about a specific situation.

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.

Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.

Annuity factor

Present value of $1 paid for each of t periods.

Asymmetric information

information that is known to some people but not to other people.

Automated Clearing House (ACH)

A collection of 32 regional electronic interbank networks used to
process transactions electronically with a guaranteed one-day bank collection float.

Block house

Brokerage firms that help to find potential buyers or sellers of large block trades.

Clearing House Automated Payments System (CHAPS)

A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS)

An international wire transfer system for high-value
payments operated by a group of major banks.

Clearing house / Clearinghouse

An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.

Commission house

A firm which buys and sells future contracts for customer accounts. Related: futures
commission merchant, omnibus account.

Company-specific risk

Related: Unsystematic risk

Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Country risk General

Level of political and economic uncertainty in a country affecting the value of loans or
investments in that country.

De facto

Existing in actual fact although not by official recognition.

Discount factor

Present value of $1 received at a stated future date.

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

Factor

A financial institution that buys a firm's accounts receivables and collects the debt.

Factor analysis

A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.

Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Factor portfolio

A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
zero on any other factors.

Factoring

Sale of a firm's accounts receivable to a financial institution known as a factor.

Field warehouse

Warehouse rented by a warehouse company on another firm's premises.

Firm-specific risk

See:diversifiable risk or unsystematic risk.

General cash offer

A public offering made to investors at large.

General obligation bonds

Municipal securities secured by the issuer's pledge of its full faith, credit, and
taxing power.

General partner

A partner who has unlimited liability for the obligations of the partnership.

General partnership

A partnership in which all partners are general partners.

Generally Accepted Accounting Principals (GAAP)

A technical accounting term that encompasses the
conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Inflation-escalator clause

A clause in a contract providing for increases or decreases in inflation based on
fluctuations in the cost of living, production costs, and so forth.

Information asymmetry

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
measure the value of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted
and actual returns, while an IC of 0.0 indicates no linear relationship.

Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.

Information services

Organizations that furnish investment and other types of information, such as
information that helps a firm monitor its cash position.

Information-content effect

The rise in the stock price following the dividend signal.

Informational efficiency

The speed and accuracy with which prices reflect new information.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Information-motivated trades

Trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Insider information

Relevant information about a company that has not yet been made public. It is illegal for
holders of this information to make trades based on it, however received.

In-house processing float

Refers to the time it takes the receiver of a check to process the payment and
deposit it in a bank for collection.

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.

Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated housing, including mobile homes.

Maturity factoring

factoring arrangement that provides collection and insurance of accounts receivable.

Multicurrency clause

Such a clause on a Euro loan permits the borrower to switch from one currency to
another currency on a rollover date.

Multifactor CAPM

A version of the capital asset pricing model derived by Merton that includes extramarket
sources of risk referred to as factor.

Negative pledge clause

A bond covenant that requires the borrower to grant lenders a lien equivalent to any
liens that may be granted in the future to any other currently unsecured lenders.

Negotiable order of withdrawal (NOW)

Demand deposits that pay interest.

Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.

Old-line factoring

factoring arrangement that provides collection, insurance, and finance for accounts receivable.

One-factor APT

A special case of the arbitrage pricing theory that is derived from the one-factor model by
using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a
single factor.

Pool factor

The outstanding principal balance divided by the original principal balance with the result
expressed as a decimal. Pool factors are published monthly by the Bond Buyer newspaper for Ginnie Mae,
Fannie Mae, and Freddie Mac(Federal Home Loan Mortgage Corporation) MBSs.

Present value factor

factor used to calculate an estimate of the present value of an amount to be received in
a future period.

Public warehouse

Warehouse operated by an independent warehouse company on its own premises.

Reported factor

The pool factor as reported by the bond buyer for a given amortization period.

Single factor model

A model of security returns that acknowledges only one common factor.
See: factor model.

Special drawing rights (SDR)

A form of international reserve assets, created by the IMF in 1967, whose
value is based on a portfolio of widely used currencies.

Specific issues market

The market in which dealers reverse in securities they wish to short.

Specific risk

See:unique risk.

Subordination clause

A provision in a bond indenture that restricts the issuer's future borrowing by
subordinating the new lender's claims on the firm to those of the existing bond holders.

Trade house

A firm which deals in actual commodities.

Two-factor model

Black's zero-beta version of the capital asset pricing model.

Warehouse receipt

Evidence that a firm owns goods stored in a warehouse.

Wire house

A firm operating a private wire to its own branch offices or to other firms, commission houses or
brokerage houses.

Withdrawal plan

The ability to establish automatic periodic mutual fund redemptions and have proceeds
mailed directly to the investor.

GENERAL-AND-ADMINISTRATIVE EXPENSES

What was spent to run the non-sales and non-manufacturing part of a company, such as office salaries and interest paid on loans.

SPECIFIC INVOICE PRICES

An inventory valuation method in which a company values the items in its ending inventory based
on the specific invoices on which they were bought.

Cost of manufacture

The cost of goods manufactured for subsequent sale.

Limiting factor

The production resource that, as a result of scarce resources, limits the production of goods
or services, i.e. a bottleneck.

General ledger

A book that contains all the accounts of the company and the balances of those accounts.

Specific identification

A method of accounting for inventory.

generally accepted accounting principles (GAAP)

This important term
refers to the body of authoritative rules for measuring profit and preparing
financial statements that are included in financial reports by a business
to its outside shareowners and lenders. The development of these
guidelines has been evolving for more than 70 years. Congress passed a
law in 1934 that bestowed primary jurisdiction over financial reporting
by publicly owned businesses to the Securities and Exchange Commission
(SEC). But the SEC has largely left the development of GAAP to the
private sector. Presently, the Financial Accounting Standards Board is
the primary (but not the only) authoritative body that makes pronouncements
on GAAP. One caution: GAAP are like a movable feast. New rules
are issued fairly frequently, old rules are amended from time to time,
and some rules established years ago are discarded on occasion. Professional
accountants have a heck of time keeping up with GAAP, that’s for
sure. Also, new GAAP rules sometimes have the effect of closing the barn
door after the horse has left. Accounting abuses occur, and only then,
after the damage has been done, are new rules issued to prevent such
abuses in the future.

Asset-specific Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as company-specific risk or
unsystematic risk.

Companyspecific Risk

See asset-specific risk

benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing
areas

computer-aided manufacturing (CAM)

the use of computers to control production processes through numerically
controlled (NC) machines, robots, and automated assembly systems

computer integrated manufacturing (CIM)

the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system

contract manufacturer

an external party that has been granted an outsourcing contract to produce a part or component for an entity

cost of goods manufactured (CGM)

the total cost of the
goods completed and transferred to Finished Goods Inventory
during the period

critical success factors (CSF)

any item (such as quality, customer
service, efficiency, cost control, or responsiveness
to change) so important that, without it, the organization
would cease to exist

design for manufacturability (DFM)

a process that is part of the project management of a new product; concerned with finding optimal solutions to minimizing product failures
and other adversities in the delivery of a new product
to customers

flexible manufacturing system (FMS)

a production system in which a single factory manufactures numerous variations
of products through the use of computer-controlled
robots
focused factory arrangement
an arrangement in which a
vendor (which may be an external party or an internal corporate
division) agrees to provide a limited number of
products according to specifications or to perform a limited
number of unique services to a company that is typically
operating on a just-in-time system

General Agreement

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

information

bits of knowledge or fact that have been carefully
chosen from a body of data and arranged in a meaningful way

just-in-time manufacturing system

a production system that attempts to acquire components and produce inventory only as needed, to minimize product defects, and to
reduce lead/setup times for acquisition and production

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

manufacturer

a company engaged in a high degree of conversion
that results in a tangible output

manufacturing cell

a linear or U-shaped production grouping of workers or machines

manufacturing cycle efficiency (MCE)

a ratio resulting from dividing the actual production time by total lead time;
reflects the proportion of lead time that is value-added

manufacturing resource planning (MRP II)

a fully integrated materials requirement planning system that involves
top management and provides a basis for both strategic
and tactical planning

Factoring

The sale of accounts receivable to a third party, with the third party bearing
the risk of loss if the accounts receivable cannot be collected.

Factory overhead

All the costs incurred during the manufacturing process, minus the
costs of direct labor and materials.

General ledger

The master set of accounts that summarizes all transactions occurring
within a company. There may be a subsidiary set of ledgers that summarizes into the
general ledger.

Generally accepted accounting principles

The rules that accountants follow when processing accounting transactions and creating financial reports. The rules are primarily
derived from regulations promulgated by the various branches of the AICPA Council.

Just-in-time manufacturing

The term for several manufacturing innovations that
result in a “pull” method of production, in which each manufacturing workstation
creates just enough product for the immediate needs of the next workstation in the
production process.

Manufacturing resource planning (MRP II)

An expansion of the material requirements planning concept, with additional computer-based capabilities in the areas of
direct labor and machine capacity planning.

Useful life

The estimated life span of a fixed asset, during which it can be expected to
contribute to company operations.

annuity factor

Present value of an annuity of $1 per period.

discount factor

Present value of a $1 future payment.

general cash offer

Sale of securities open to all investors by an already-public company.

generally accepted accounting principles (GAAP)

Procedures for preparing financial statements.

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