Definition of Transparency

Transparency

The full and fair disclosure of all material items that have implications for the
analysis of both earnings and financial position.

Abusive Earnings Management

The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.

Abusive Earnings Management

A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.

Accounting earnings

earnings of a firm as reported on its income statement.

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.

activity analysis

the process of detailing the various repetitive actions that are performed in making a product or
providing a service, classifying them as value-added and
non-value-added, and devising ways of minimizing or eliminating
non-value-added activities

Adjusted Earnings

Net income adjusted to exclude selected nonrecurring and noncash items of reserve, gain, expense, and loss.

Advance material request

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

All-in cost

Total costs, explicit and implicit.

All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

allocate

assign based on the use of a cost driver, a cost predictor,
or an arbitrary method

allocation

the systematic assignment of an amount to a recipient
set of categories annuity a series of equal cash flows (either positive or negative) per period

Allocation

The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Allowance for bad debts

An offset to the accounts receivable balance, against which
bad debts are charged. The presence of this allowance allows one to avoid severe
changes in the period-to-period bad debt expense by expensing a steady amount to
the allowance account in every period, rather than writing off large bad debts to
expense on an infrequent basis.

Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.

Allowance method

A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.

Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a a sinking
fund requirement.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

basic earnings per share (EPS)

This important ratio equals the net
income for a period (usually one year) divided by the number capital
stock shares issued by a business corporation. This ratio is so important
for publicly owned business corporations that it is included in the daily
stock trading tables published by the Wall Street Journal, the New York
Times, and other major newspapers. Despite being a rather straightforward
concept, there are several technical problems in calculating
earnings per share. Actually, two EPS ratios are needed for many businesses—
basic EPS, which uses the actual number of capital shares outstanding,
and diluted EPS, which takes into account additional shares of
stock that may be issued for stock options granted by a business and
other stock shares that a business is obligated to issue in the future.
Also, many businesses report not one but two net income figures—one
before extraordinary gains and losses were recorded in the period and a
second after deducting these nonrecurring gains and losses. Many business
corporations issue more than one class of capital stock, which
makes the calculation of their earnings per share even more complicated.

Basic Earnings Power Ratio

Percentage of earnings relative to total assets; indication of how
effectively assets are used to generate earnings. It is calculated by
dividing earnings before interest and taxes by the book value of all
assets.

Bill of materials

A listing of all the materials and quantities that go to make up a completed product.

bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)

Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production
process.

Bill of materials (BOM)

A listing of all parts and subassemblies required to produce one
unit of a finished product, including the required number of units of each part
and subassembly.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Break-even analysis

An analysis of the level of sales at which a project would make zero profit.

break-even analysis

analysis of the level of sales at which the company breaks even.

Break-Even Analysis

An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).

Breeder bill of materials

A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item.

Call

An option that gives the right to buy the underlying futures contract.

Call

a. An option to buy a certain quantity of a stock or commodity for a
specified price within a specified time. See Put.
b. A demand to submit bonds to the issuer for redemption before the maturity date.
c. A demand for payment of a debt.
d. A demand for payment due on stock bought on margin.

Call an option

To exercise a call option.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
for a specified call price.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
contract.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call Option

A contract that gives the holder the right to buy an asset for a
specified price on or before a given expiration (maturity) date

call option

Right to buy an asset at a specified exercise price on or before the exercise date.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.

Call price

The price for which a bond can be repaid before maturity under a call provision.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be
called.

Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior
to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Callable

A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
call the security.

Callable bond

A bond that allows the issuer to buy back the bond at a
predetermined price at specified future dates. The bond contains an embedded
call option; i.e., the holder has sold a call option to the issuer. See Puttable
bond.

callable bond

Bond that may be repurchased by the issuer before maturity at specified call price.

Capital allocation

decision allocation of invested funds between risk-free assets versus the risky portfolio.

Capital Consumption Allowance

See depreciation.

Capital Cost Allowance (CCA)

The annual depreciation expense allowed by the Canadian Income Tax Act.

capital investment analysis

Refers to various techniques and procedures
used to determine or to analyze future returns from an investment
of capital in order to evaluate the capital recovery pattern and the
periodic earnings from the investment. The two basic tools for capital
investment analysis are (1) spreadsheet models (which I strongly prefer)
and (2) mathematical equations for calculating the present value or
internal rate of return of an investment. Mathematical methods suffer
from a lack of information that the decision maker ought to consider. A
spreadsheet model supplies all the needed information and has other
advantages as well.

Cash-equivalent items

Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

chief financial officer (CFO)

Officer who oversees the treasurer and controller and sets overall financial strategy.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Clear a position

To eliminate a long or short position, leaving no ownership or obligation.

Cluster analysis

A statistical technique that identifies clusters of stocks whose returns are highly correlated
within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings
such as growth, cyclical, stable and energy stocks.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

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.

Composition

Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Core Earnings

A measure of earnings that includes only the results of the primary operating
activities of the firm. It is most common to see the measure used by financial firms.

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Corporate financial planning

financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.

correlation analysis

an analytical technique that uses statistical
measures of dispersion to reveal the strength of the
relationship between variables

cost allocation

the assignment, using some reasonable basis,
of any indirect cost to one or more cost objects

Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)

cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs

Cost Plus Estimated Earnings in Excess of Billings

Revenue recognized to date under the percentage-of-completion method in excess of amounts billed. Also known as unbilled accounts
receivable.

Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.

costs of financial distress

Costs arising from bankruptcy or distorted business decisions before bankruptcy.

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.

Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.

Covered call

A short call option position in which the writer owns the number of shares of the underlying
stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the
stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

credit analysis

Procedure to determine the likelihood a customer will pay its bills.

Deemed Disposition

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.

Deferred call

A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.

Depreciation Allowances

Tax deductions that businesses can claim when they spend money on investment goods.

Differential disclosure

The practice of reporting conflicting or markedly different information in official
corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.

diluted earnings per share (EPS)

This measure of earnings per share
recognizes additional stock shares that may be issued in the future for
stock options and as may be required by other contracts a business has
entered into, such as convertible features in its debt securities and preferred
stock. both basic earnings per share and, if applicable, diluted
earnings per share are reported by publicly owned business corporations.
Often the two EPS figures are not far apart, but in some cases the
gap is significant. Privately owned businesses do not have to report earnings
per share. See also basic earnings per share.

direct material

a readily identifiable part of a product; the cost of such a part

Direct materials cost

The cost of all materials used in a cost object, such as finished goods.

Direct materials mix variance

The variance between the budgeted and actual mixes of
direct materials costs, both using the actual total quantity used. This variance isolates
the unit cost of each item, excluding all other variables.

Disclosure

Additional information attached to a company’s financial statements, usually
as explanation for activities whose related transactions have influenced the
financial statements.

Discriminant analysis

A statistical process that links the probability of default to a specified set of financial ratios.

Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Dynamic asset allocation

An asset allocation strategy in which the asset mix is mechanistically shifted in
response to -changing market conditions, as in a portfolio insurance strategy, for example.

Earmarked material

Inventory that has been physically marked as being for a
specific purpose.

Earnings

Net income for the company during the period.

Earnings

In general, refers to a company's total sales less cost of sales and operating expenses, including interest and income tax.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.

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