|MM's proposition I (debt irrelevance proposition)|
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Definition of MM's proposition I (debt irrelevance proposition)
MM's proposition I (debt irrelevance proposition)
The value of a firm is unaffected by its capital structure.
A promise to sell an asset before the seller has lined up purchase of the asset. This
An offset to the accounts receivable balance, against which
Information that is known to some people but not to other people.
A situation wherein participants in a transaction have different net tax rates.
A lack of equivalence between two things, such as the unequal tax treatment of interest expense
A subcommittee of a company's board of directors assigned the responsibility
An account receivable that cannot be collected.
The amount of accounts receivable that is not expected to be collected.
Refers to accounts receivable from credit sales to customers
A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
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:
The actual physical commodity, as distinguished from a futures contract.
Cash flow from operations minus preferred stock dividends, divided by the
A privately owned, profit-seeking firm that accepts deposits and makes loans.
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.
Demand for payment.
A loan made on real estate collateral, other than a residential property, in which a mortgage is given to secure payment of principal and interest.
Short-term unsecured promissory notes issued by a corporation. The maturity of
Short-term unsecured notes issued by firms.
The risk that a foreign debtor will be unable to pay its debts because of business events,
The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
A broker on the floor of an exchange acts as agent for a particular brokerage house and
A firm which buys and sells future contracts for customer accounts. Related: futures
A trader is said to have a commitment when he assumes the obligation to accept or make
A fee paid to a commercial bank in return for its legal commitment to lend funds that have
a cost related either to the long-term investment
Committee, AIMR Performance Presentation Standards Implementation Committee
The Association for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
A commodity is food, metal, or another physical substance that investors buy or sell, usually via
The representing of accounting information over multiple years as percentages
common body of knowledge (CBK)
the minimum set of knowledge needed by a person to function effectively in a particular field
An agreement between two or more countries that permits the free movement of capital
Are equity instruments that take no security against assets, have no fixed terms of repayment and pay no fixed dividends.
common-size balance sheet
Balance sheet that presents items as a percentage of total assets.
common-size income statement
Income statement that presents items as a percentage of revenues.
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
a company committee comprised mainly of members of the board of directors; is responsible
An arrangement in which the money manager pursues an active bond portfolio
Cost of Common Stock
The rate of return required by the investors in the common stock of
Cost of Debt
The cost of debt (bonds, loans, etc.) that a company is charged for
Borrowings from financiers.
Funds owed to another entity.
Ability to borrow. The amount a firm can borrow up to the point where the firm value no
An assessment of ability and willingness to repay a loan from anticipated future cash flow or other sources.
Debt (Credit Insurance)
Money, goods or services that someone is obligated to pay someone else in accordance with an expressed or implied agreement. debt may or may not be secured.
The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
Indicator of financial leverage. Compares assets provided by creditors to assets provided
A comparison of debt to equity in a company's capital structure.
Raising loan capital through the creation of debt by issuing a form of paper evidencing amounts owed and payable on specified dates or on demand.
An asset requiring fixed dollar payments, such as a government or corporate bond.
Any financial asset corresponding to a debt, such as a bond or a treasury bill.
The amplification of the return earned on equity when an investment or firm is financed
A bond covenant that restricts in some way the firm's ability to incur additional indebtedness.
The market for trading debt instruments.
Total debt divided by total assets.
The percentage of debt that is used in the total capitalization of a
Reducing the principal and/or interest payments on LDC loans.
IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
A security representing a debt relationship with an enterprise, including a government
Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided
Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm
A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
A widely used financial statement ratio to assess the
Debtor in possession
A firm that is continuing to operate under Chapter 11 bankruptcy process.
New debt obtained by a firm during the Chapter 11 bankruptcy process.
Sales to customers who have bought goods or services on credit but who have not yet paid their debt.
Doctrine of sovereign immunity
Doctrine that says a nation may not be tried in the courts of another country
e-commerce (electronic commerce)
any business activity that uses the Internet and World Wide Web to engage in financial transactions
Earnings per share of common stock
How much profit a company made on each share of common stock this year.
Short-term notes with maturities up to 360 days that are issued by companies in
Federal Open Market Committee (FOMC)
Fed committee that makes decisions about open-market operations.
Firm commitment underwriting
An undewriting in which an investment banking firm commits to buy the
Firm's net value of debt
Total firm value minus total firm debt.
debt maturing after more than one year.
debt with more than 1 year remaining to maturity.
Futures commission merchant
A firm or person engaged in soliciting or accepting and handling orders for
The ratio of a change in the option delta to a small change in the price of the asset on which the
The rate of change of delta for a derivative security relative to the
Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA)
A federal Act shielding employers from liability if they have made
Delivery and settlement of securities within five business days.
Immigration Reform and Control Act of 1986
A federal Act requiring all employers having at least four employees to verify the identity and employment
The construction of an asset and a liability that are subject to offsetting changes in value.
A bond portfolio strategy whose goal is to eliminate the portfolio's risk against a
A situation involving information that is known to some, but not all, participants.
Variant of linear programming whereby the solution values must be integers.
a mathematical programming technique in which all solutions for variables must be restricted to whole numbers
Interest rate on debt
The firm's cost of debt capital.
International Monetary Market (IMM)
A division of the CME established in 1972 for trading financial
The Modigliani and Miller theorem that a firm's capital structure is irrelevant to the firm's
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