Definition of Spin-off

Spin-off

A company can create an independent company from an existing part of the company by selling or
distributing new shares in the so-called spinoff.

Absolute priority

Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
before junior creditors receive any payment.

Accounting insolvency

Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
the books.

American shares

Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
issuer. The certificates represent claims to foreign equities.

Authorized shares

Number of shares authorized for issuance by a firm's corporate charter.

Blue-chip company

Large and creditworthy company.

Company-specific risk

Related: Unsystematic risk

Comparison universe

The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

Consol

A type of bond that has an infinite life but is not issued in the U.S. capital markets.

Consolidation

The combining of two or more firms to form an entirely new entity.

Consortium banks

A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

Cost of limited partner capital

The discount rate that equates the after-tax inflows with outflows for capital
raised from limited partners.

Counterpart items

In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.

Counterparties

The parties to an interest rate swap.

Counterparty Party

on the other side of a trade or transaction.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.

Crossover rate

The return at which two alternative projects have the same net present value.

Deductive reasoning

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

Depository Trust Company (DTC)

DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Doctrine of sovereign immunity

Doctrine that says a nation may not be tried in the courts of another country
without its consent.

Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys stock on behalf of
employees.

Flat price (also clean price)

The quoted newspaper price of a bond that does not include accrued interest.
The price paid by purchaser is the full price.

Fully diluted earnings per shares

Earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.

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.

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.

Government sponsored enterprises

Privately owned, publicly chartered entities, such as the Student Loan
Marketing Association, created by Congress to reduce the cost of capital for certain borrowing sectors of the
economy including farmers, homeowners, and students.

Holding company

A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.

Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of
other projects.

Inductive reasoning

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

Insolvency risk

The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.

Insolvent

A firm that is unable to pay debts (liabilities are greater than assets).

Intercompany loan

Loan made by one unit of a corporation to another unit of the same corporation.

Intercompany transaction

Transaction carried out between two units of the same corporation.

Lessor

An entity that leases an asset to another entity.
Letter of comment A communication to the firm from the SEC that suggests changes to its registration
statement.

Limitation on merger, consolidation, or sale

A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limited partner

A partner who has limited legal liability for the obligations of the partnership.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Lessor

An entity that leases an asset to another entity.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Management/closely held shares

Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

Master limited partnership (MLP)

A publicly traded limited partnership.

National Futures Association (NFA)

The futures industry self regulatory organization established in 1982.

New York Stock Exchange (NYSE)

Also known as the Big Board or The Exhange. More than 2,00 common
and preferred stocks are traded. The exchange is the older in the United States, founded in 1792, and the
largest. It is lcoated on Wall Street in new York City

New-issues market

The market in which a new issue of securities is first sold to investors.

New money

In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
those maturing.

Other sources

Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. part of Free cash flow calculation.

Outstanding shares

shares that are currently owned by investors.

Overbought/oversold indicator

An indicator that attempts to define when prices have moved too far and too
fast in either direction and thus are vulnerable to reaction.

Participating GIC

A guaranteed investment contract where the policyholder is not guaranteed a crediting
rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.

Participating fees

The portion of total fees in a syndicated credit that go to the participating banks.

Partnership

Shared ownership among two or more individuals, some of whom may, but do not necessarily,
have limited liability. See: general partnership, limited partnership, and master limited partnership.

Pension sponsors

Organizations that have established a pension plan.

Performance shares

shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.

Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

Personal trust

An interest in an asset held by a trustee for the benefit of another person.

Plan sponsors

The entities that establish pension plans, including private business entities acting for their
employees; state and local entities operating on behalf of their employees; unions acting on behalf of their
members; and individuals representing themselves.

Poison pill

Anit-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the
firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the
cyanide pill that secret agents are instructed to swallow if capture is imminent.

Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.

Preferred shares

Preferred shares give investors a fixed dividend from the company's earnings. And more
importantly: preferred shareholders get paid before common shareholders. See: preferred stock.

Presold issue An issue

that is sold out before the coupon announcement.

Promissory note

Written promise to pay.

Savings and Loan association

National- or state-chartered institution that accepts savings deposits and
invests the bulk of the funds thus received in mortgages.

Seasoned datings

Extended credit for customers who order goods in periods other than peak seasons.

Seasoned issue

Issue of a security for which there is an existing market. Related: Unseasoned issue.

Seasoned new issue

A new issue of stock after the company's securities have previously been issued. A
seasoned new issue of common stock can be made by using a cash offer or a rights offer.

Selling group

All banks involved in selling or marketing a new issue of stock or bonds

Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from
a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you
borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Shares

Certificates or book entries representing ownership in a corporation or similar entity

Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.

Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

Smithsonian agreement

A revision to the Bretton Woods international monetary system which was signed at
the Smithsonian Institution in Washington, D.C., U.S.A., in December 1971. Included were a new set of par
values, widened bands to +/- 2.25% of par, and an increase in the official value of gold to US$38.00 per ounce.

Society for Worldwide Interbank Financial Telecommunications (SWIFT)

A dedicated computer network to support funds transfer messages internationally between over 900 member banks worldwide.

"Soft" Capital Rationing

Capital rationing that under certain circumstances can be violated or even viewed
as made up of targets rather than absolute constraints.

Soft currency

A currency that is expected to drop in value relative to other currencies.

Soft dollars

The value of research services that brokerage houses supply to investment managers "free of
charge" in exchange for the investment manager's business/commissions.

Sole proprietorship

A business owned by a single individual. The sole proprietorship pays no corporate
income tax but has unlimited liability for business debts and obligations.

Sovereign risk

The risk that a central bank will impose foreign exchange regulations that will reduce or
negate the value of FX contracts. Also refers to the risk of government default on a loan made to it or
guaranteed by it.

Strip mortgage participation certificate (strip PC)

Ownership interests in specified mortgages purchased
by Freddie Mac from a single seller in exchange for strip PCs representing interests in the same mortgages.
Stripped bond Bond that can be subdivided into a series of zero-coupon bonds.

Subpart F

Special category of foreign-source "unearned" income that is currently taxed by the IRS whether
or not it is remitted to the U.S.

Technical insolvency

Default on a legal obligation of the firm. For example, technical insolvency occurs
when a firm doesn't pay a bill.

Unseasoned issue

Issue of a security for which there is no existing market. See: seasoned issue.

Cost of goods sold

The cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw
materials, components, labor and other things that went into producing an item.

SELLING EXPENSES

What was spent to run the sales part of a company, such as sales salaries, travel, meals, and lodging for salespeople, and advertising.

Absorption costing

A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.

Cost of goods sold

See cost of sales.

Optimum selling price

The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.

Source document

The document that records a transaction and forms the basis for recording in a business’s
accounting system.

Authorized shares

The number of shares of stock that the company is legally authorized to sell.

Cost of goods sold

The cost of the items that were sold during the current period.

Issued shares

The number of shares that the company has sold to the public.

Outstanding shares

The number of shares that are in the hands of the public. The difference between issued shares and outstanding shares is the shares held as treasury stock.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.

solvency

Refers to the ability of a business to pay its liabilities on time
when they come due for payment. A business may be insolvent, which
means that it is not able to pay its liabilities and debts on time. The current
ratio and acid test ratio are used to evaluate the short-term solvency
prospects of a business.

Companyspecific Risk

See asset-specific risk

Independent Projects

A situation where an increase (or decrease) in the benefits of one
project has no effect on the benefits of another project. Also, a
situation where the acceptance of one project does not preclude
the acceptance of another project.

absorption costing

a cost accumulation and reporting
method that treats the costs of all manufacturing components
(direct material, direct labor, variable overhead, and
fixed overhead) as inventoriable or product costs; it is the
traditional approach to product costing; it must be used for
external financial statements and tax returns

administrative department

an organizational unit that performs management activities benefiting the entire organization;
includes top management personnel and organization
headquarters

Employee Stock Ownership Plan (ESOP)

a profit-sharing compensation program in which investments are made in
the securities of the employer

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