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Definition of sole proprietor
sole owner of a business which has no partners and no shareholders. The proprietor is personally liable for all the firmâ€™s obligations.
A business owned by a single individual. The sole proprietorship pays no corporate
An unincorporated business owned by one person which may or may not have employees.
an entityâ€™s legal nature (for example,
The reduction in utility of an inventory item or fixed asset. If it is an
Parts not used in any current end product.
A single person who is the owner of an unincorporated business.
Abramsâ€™ model for calculating DLOM based on the interaction of discounts from four economic components.
A bond covenant that specifies certain actions the firm must take.
The ratio of net income to net sales.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
Requirement that none of an order be executed unless all of it can be executed at the specified price.
Total costs, explicit and implicit.
An arrangement whereby a security issue is canceled if the underwriter is unable
Also called surplus management, the task of managing funds of a financial
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
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
Average tax rate
taxes as a fraction of income; total taxes divided by total taxable income.
Any large principal payment due at maturity for a bond or loan with or without a a sinking
Gives the lessee the option to purchase the asset at a price below fair market
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
Before-tax profit margin
The ratio of net income before taxes to net sales.
In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Repetitive cycles of economic expansion and recession.
A business that has terminated with a loss to creditors.
The risk that the cash flow of an issuer will be impaired because of adverse economic
An option that gives the right to buy the underlying futures contract.
Call an option
To exercise a call option.
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An option contract that gives its holder the right (but not the obligation) to purchase a specified
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
A feature of some callable bonds that establishes an initial period when the bonds may not be
An embedded option granting a bond issuer the right to buy back all or part of the issue prior
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
decision allocation of invested funds between risk-free assets versus the risky portfolio.
Cash flow after interest and taxes
Net income plus depreciation.
Communication barrier between financiers (investment bankers) and traders. This barrier is
A transaction in which the purchaser's intention is to reduce or eliminate a short position in
he written statement that follows any "trade" in the securities markets. Confirmation is issued
Contingent pension liability
Under ERISA, the firm is liable to the plan participants for up to 39% of the net
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
one of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
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
A short call option position in which the writer owns the number of shares of the underlying
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
A provision that prohibits the company from calling the bond before a certain date. During this
A non-cash expense that provides a source of free cash flow. Amount allocated during the
Depreciation tax shield
The value of the tax write-off on depreciation of plant and equipment.
Direct stock-purchase programs
The purchase by investors of securities directly from the issuer.
Agreement between two countries that taxes paid abroad can be offset against
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Earnings before interest and taxes (EBIT)
A financial measure defined as revenues less cost of goods sold
Cash flow plus change in present value.
Effective call price
The strike price in an optional redemption provision plus the accrued interest to the
Employee stock ownership plan (ESOP)
A company contributes to a trust fund that buys stock on behalf of
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax
European Monetary System (EMS)
An exchange arrangement formed in 1979 that involves the currencies
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federally related institutions
Arms of the federal government that are exempt from SEC registration and
Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
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.
See:diversifiable risk or unsystematic risk.
With CMOs, the start of the cash flow cycle for the cash flow window.
Conventional bonds for which the coupon rate is set as a fixed percentage of the par value.
Also called a busted convertible, a convertible security that is trading like a straight
Assets that pay a fixed-dollar amount, such as bonds and preferred stock.
The market for trading bonds and preferred stock.
Foreign tax credit
Home country credit against domestic income tax for foreign taxes paid on foreign
Full faith-and-credit obligations
The security pledges for larger municipal bond issuers, such as states and
A partnership in which all partners are general partners.
Generally Accepted Accounting Principals (GAAP)
A technical accounting term that encompasses the
A 1933 act in which Congress forbade commercial banks to own, underwrite, or deal in
A phase of development in which a company experiences rapid earnings growth as it produces
Money that moves across country borders in response to interest rate differences and that moves
The right of the homeowner to prepay, or call, the mortgage at any time.
Imputation tax system
Arrangement by which investors who receive a dividend also receive a tax credit for
one who receives income from a trust.
A bond on which the payment of interest is contingent on sufficient earnings. These bonds are
A mutual fund providing for liberal current income from investments.
Income statement (statement of operations)
A statement showing the revenues, expenses, and income (the
Common stock with a high dividend yield and few profitable investment opportunities.
The sale of an asset in exchange for a specified series of payments (the installments).
Interest equalization tax
tax on foreign investment by residents of the U.S. which was abolished in 1974.
Interest tax shield
The reduction in income taxes that results from the tax-deductibility of interest payments.
Internally efficient market
Operationally efficient market.
International Monetary Fund
An organization founded in 1944 to oversee exchange arrangements of
International Monetary Market (IMM)
A division of the CME established in 1972 for trading financial
A put option that has a strike price higher than the underlying futures price, or a call option
Intrinsic value of a firm
The present value of a firm's expected future net cash flows discounted by the
The revenue from a portfolio of invested assets.
Investment tax credit
Proportion of new capital investment that can be used to reduce a company's tax bill
In the mortgage pipeline, risk that occurs when the originator commits loan terms to the
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