Definition of Target

Target

A specific level of some economic variable that a policy attempts to maintain.

Feasible target payout ratios

Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Target cash balance

Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.

Target firm

A firm that is the object of a takeover by another firm.

Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line
increases in earnings occur.

Target zone arrangement

A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

Targeted repurchase

The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.

Target costing

A method of costing that is concerned with managing whole-of-life costs of a product/service during the product design phase – the difference between target price (to achieve market share) and the target profit margin.

Target rate of return pricing

A method of pricing that estimates the desired return on investment to be achieved from the
fixed and working capital investment and includes that return in the price of a product/service.

target costing

a method of determining what the cost of a
product should be based on the product’s estimated selling
price less the desired profit

Target Benefit Plan

A defined benefit plan under which the employer makes
annual contributions into the plan based on the actuarial assumption at that time
regarding the amount of funding needed to achieve a targeted benefit level.

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Exclusionary self-tender

The firm makes a tender offer for a given amount of its own stock while excluding
targeted stockholders.

Golden parachute

Compensation paid to top-level management by a target firm if a takeover occurs.

Greenmail

Situation in which a large block of stock is held by an unfriendly company, forcing the target
company to repurchase the stock at a substantial premium to prevent a takeover.

Leverage rebalancing

Making transactions to adjust (rebalance) a firm's leverage ratio back to its target.

Linter's observations

John Lintner's work (1956) suggested that dividend policy is related to a target level of
dividends and the speed of adjustment of change in dividends.

Rate anticipation swaps

An exchange of bonds in a portfolio for new bonds that will achieve the target
portfolio duration, based on the investor's assumptions about future changes in interest rates.

Shortfall risk

The risk of falling short of any investment target.

"Soft" Capital Rationing

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

Watch list

A list of securities selected for special surveillance by a brokerage, exchange or regulatory
organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks
showing unusual activity.

White knight

A friendly potential acquirer of a firm sought out by a target firm that is threatened by a less
welcome suitor.

Budgetary control

The process of ensuring that actual financial results are in line with targets – see variance
analysis.

Feedforward

The process of determining prospectively whether strategies are likely to achieve the target
results that are consistent with organizational goals.

Kaizen

A method of costing that involves making continual, incremental improvements to the
production process during the manufacturing phase of the product/service lifecycle, typically
involving setting targets for cost reduction.

Profit centre

A division or unit of an organization that is responsible for achieving profit targets.

Variance analysis

A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.

financial incentive

a monetary reward provided for performance
above targeted objectives

mission statement

a written expression of organizational purpose that describes how the organization uniquely meets its targeted customers’ needs with its products or services

Current cost

Under target costing concepts, this is the cost that would be applied to a
new product design if no additional steps were taken to reduce costs, such as
through value engineering or kaizen costing. Under traditional costing concepts, this
is the cost of manufacturing a product with work methods, materials, and specifications
currently in use.

merger

Combination of two firms into one, with the acquirer assuming assets and liabilities of the target firm.

poison pill

Measure taken by a target firm to avoid acquisition;
for example, the right for existing shareholders to buy additional
shares at an attractive price if a bidder acquires a large holding.

white knight

Friendly potential acquirer sought by a target company threatened by an unwelcome suitor.

Earnings Management

The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.

Earning Power

A company's ability to generate a sustainable, and likely growing, stream of
earnings that provide cash flow.
Earnings Management The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent with a smoother, more sustainable earnings stream. Often, although not always, earnings management entails taking steps to reduce and “store” profits during good years for use during slower years. This more limited form of earnings management is known as income smoothing.

Operational Earnings Management

Management actions taken in the effort to create stable
financial performance by acceptable, voluntary business decisions. An example: a special discount
promotion to increase flagging sales near the end of a quarter when targets are not being met.

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