Study sets, textbooks, questions
Upgrade to remove ads
Fin4830 Final Exam Terms Spring 2018
Terms in this set (160)
method of evaluating a security in an attempt to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
methodology for forecasting the direction of prices through the study of past market data, primarily price and volume
Electronic Data Gathering Analysis, and Retrieval System. It performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file with the US SEC.
Financial data and software company that offers access to data and analytics to analysts and investment bankers at global financial institutions.
Something material determines whether or not it has the ability to significantly influence the decision making of an investor.
Also called vertical analysis. This is a method of evaluating financial information by expressing each item in a financial statement as a percentage of a base amount for the same period. Used on Income Statements or Balance Sheets.
Ratios as Analytical Tools
Relationships determined from a company's financial information and used for comparison purposes.
Refers to the difference between selling price and the sellers cost for the goods or services being sold. Expressed as a percentage of selling price.
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plant, or equipment. Often used to undertake new projects or investments by the firm.
Used to file when a significant occurrence, such as resignation or passing away of a CEO, or change in top management, happens within an SEC registrant, and is required to be filed within fifteen days of the occurrence.
Used when no other form is prescribed; typically used with new SEC registrants who have been filing with the SEC for less than 36 months. Most comprehensive form.
Used by a company in the offering of new securities. Only companies who have been filing with the SEC for at least three years may do this. This form was discontinued in 2005, and the use of this form is now included in Form S-1
Used to file by companies who already have a significant following on the stock market. If at least $75M of voting stock is held by nonaffiliates, typically the company will use this form.
Must be filed no later than ten days after an insider becomes affiliated with a company, and must be filed for each company in which a person is an insider, regardless of whether or not the insider has an equity position in the company at that time.
Must be filed with the SEC whenever there is a material change in the holdings of company insiders. Insiders consist of directors and officers of the company, as well as shareholders holding at least ten percent of the company's outstanding stock.
Form 14 DEF
Must be filed by or on behalf of a registrant when a shareholder vote is required. Most commonly used along with an annual meeting proxy. Provides sufficient information to security holders to make an informed vote at upcoming meetings.
A publication that public corporations must provide annually to shareholders to describe their operations and financial conditions, as well as the company's activities over the past year.
2002 Act protects investors from the possibility of fraudulent accounting activities by corporations. Improved financial disclosures from corporations and prevents accounting fraud.
1933 Securities Act
"Truth in Securities" law. Requires investors receive financial and other significant information concerning securities being offered, and prohibit deceit, misrepresentations, and other fraud in the sale of securities
1934 Securities Act
This act created the Securities and Exchange Commission (SEC). Created to govern securities transactions on the secondary market. Empowered the SEC to require reporting by publicly owned companies and registration of securities.
Securities and Exchange Commission (SEC)
Created by the Securities act of 1934. Independent federal government agency responsible for protecting investors, maintaining fair operation of securities markets, and facilitating capital formation.
Audit of a potential investment or product to confirm all facts, such as reviewing financial records, plus anything else deemed to be material to an investor. The care a reasonable person should take before entering into a financial transaction agreement.
Act of releasing all relevant information so that investors have all the information needed to act upon investing in a security.
The amount that can be lost in an investment.
Supply Chain Management (SCM)
Active streamlining of a business' supply- side activities to maximize customer value and gain a competitive advantage in the marketplace.
Points of Distribution (POD)
Refers to overseeing the movement of goods from supplier to manufacturer to point of sale. This is a term that revers to numerous activities and processed such as packaging, inventory, warehousing, and logistics.
Trailing Twelve Months (TTM)
Timeframe of the past twelve months used for reporting financial figures. Represents a company's financial performance for any twelve month period, but typically is not the company's fiscal year end.
Year Over Year (YoY)
Method of evaluating two or more measured events to compare the results at one time period with those of a comparable time period on an annual basis. Frequently used by investors seeking whether or not a company's financial performance is improving or worsening.
Debt/ Net Worth
Debt to Tangible Net Worth
Gauges the resources a company has to pay back debt. Is a derivative of the Debt to equity ratio. Tangible net worth includes cash, savings, AR, equipment, PPE, and real estate.
Working Capital Ratio
Difference between a company's current assets (cash, or AR), and inventories of raw materials and finished goods.
___ = Current Assets - Current Liabilities.
Indicator of a company's short- term liquidity; measures a company's ability to meet short- term obligations with its most liquid assets. Excludes inventories.
_____= (Current assets- inventory)/Current Liab.
Capital Leases to Net worth
Operating Leases to Net Worth
Contingent Liab. as a percentage of Total Liab.
Initial Public Offering (IPO)
The first time that a stock of a private company is offered to the public. Underwriters determine which type of security to issue, best price, amount to offer, and the best time to release the securities.
The failure by a company to pay interest or principal on a loan or security when it comes due. When a debtor is unable to meet legal obligation of debt repayment.
Legal procedure involving a person or business who is unable to pay off outstanding debts. All of the debtor's assets are revalued and may be used to pay a portion of the debt.
Specialized, federal courtrooms created to settle both personal and corporate cases of bankruptcy. Established in 1978 as part of the Bankruptcy Reform Act.
Court of Appeal
Part of the Judicial system that is responsible for hearing and reviewing appeals from legal cases that have already been heard in another lower court.
Chapter 7 Bankruptcy
Trustee is appointed to liquidate the nonexempt assets to pay creditors, and after the proceeds are exhausted, the remaining debt is discharged..
Chapter 11 Bankruptcy
Involves reorganization of a debtor's business affairs, debts, and assets. Generally filed by corporations that require time to restructure their debts, and gives the debtor a fresh start.
Using borrowed money. Particularly, use of financial instruments or borrowed capital to increase the potential return of an investment. Also referred to as the amount of debt used to finance assets.
Leveraged Buyout (LBO)
Acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. Assets of the company being acquired are often used a collateral for the loans.
Statement of Cash Flows
Summarizes the amount of cash and cash equivalents entering and leaving a company. Measures how well a company manages its cash position. How well the company generates cash to repay its debt obligations and fund its operating expenses.
Reports a company's assets, liabilities, and shareholder's equity at a SPECIFIC POINT IN TIME. Provides a basis for computing rates of return and evaluating its capital structure.
Reports a company's financial performance over a specific accounting period. Performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non- operating activities. Also shows net income/ loss over a specific accounting period.
Earnings Before Interest, Taxes, Depreciation, and Amortization. Indicator of a company's financial performance. Used as a proxy for the earning potential of a business.
Balancing and finding the differences in the change in a set of numbers on a financial statement(s).
Intangible asset that arises when a company purchases another company at a price higher than the acquired company's net book value of assets. Not a physical asset, and can be found in the assets section of a company's balance sheet.
Debt to Total Liabilities
Debt to Total Equity
Leverage ratio that compares a company's total liabilities to its total stockholders equity. Measurement of the percentage of the company's balance sheet that is financed by its suppliers, lenders, creditors, and obligors, vs. what the stockholders have committed.
___= Total liablities/ Stockholders equity
Long- Term Debt to Total Equity
Contracts as Debt
Refers to a high- yield or noninvestment- grade bonds. Fixed income instruments that carry a credit rating of BB or lower by S&P's or Ba or below by Moody's
a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.
A bond secured by a mortgage or pool of mortgages. These bonds are typically backed by real estate holdings and real property such as equipment. In a default situation, mortgage bondholders have a claim to the underlying property and could sell it off to compensate for the default.
A contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years.
Commercial Bank Debt
a debt-based funding arrangement between a business and a financial institution, typically used to fund major capital expenditures and or cover operational costs that the company may otherwise be unable to afford.
Secured Debt Loans
Debt backed by an asset, such as real estate or a vehicle, also known as collateral. Under the terms of a secured loan, the lender is allowed to seize the collateral used to guarantee the loan if the borrower defaults.
Working Capital Loans
a loan that has the purpose of financing the everyday operations of a company. Are not used to buy long-term assets or investments and are instead used to cover accounts payable, wages, etc.
Loan Agreement as a Contract
Lending of money by a vendor to a customer who then uses it to buy the vendor's inventory or services. Sometimes called "trade credit," such financing usually takes the form of deferred loans from the vendor.
Accounts Receivable Debt
Contingent Debt/ Liabilities (Examples)
An unusual kind of debt that is dependent on uncertain future developments. Not a definitive liability as it is based on the outcome of a future event (for example, such as a court verdict).
Secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front.
To convert a rate of any length into a rate that reflects the rate on an annual, or yearly, basis. This is most often done on rates of less than one year, and it usually does not take into account the effects of compounding.
Refers to the requirement by the defaulting party to give up ownership of an asset, or cash flows from an asset, as compensation for the resulting losses to the other party.
A characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year.
A provision in a bond indenture or loan agreement that puts a borrower in default if the borrower defaults on another obligation. For instance, a cross-default clause in a loan agreement may say that a person automatically defaults on his car loan if he defaults on his mortgage.
Debtor in Possession (DiP)
A person or corporation that has filed for bankruptcy protection but still holds property to which a creditor has a right.
A special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law
First Day Cash Order
Any creditor or lender associated with investment in or issuance of a credit product backed by collateral. Have a first order claim on the payouts of a distressed credit investment.
An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because it will have nothing to fall back on should the borrower default on the loan. A debenture holder.
The imposition of a bankruptcy reorganization plan by a court despite any objections by certain classes of creditors. Often utilized as part of a Chapter 13 bankruptcy filing and involves the debtor changing the terms of a contract with a creditor with the help of the court.
A type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchiser) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the businesses name.
A payment to an owner for the use of property, especially patents, copyrighted works, franchises or natural resources.
Private Equity Firms
Capital that is not listed on a public exchange. Composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.
Paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan. It also refers to the spreading out of capital expenses for intangible assets over a specific duration (usually over the asset's useful life) for accounting and tax purposes.
Type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan. Attractive to short-term borrowers because they typically carry lower interest rates than loans with longer terms; however, the borrower must be aware of refinancing risks as there's a risk the loan may reset at a higher interest rate.
A loan where a payment of the entire principal of the loan, and sometimes the principal and interest, is due at the end of the loan term.
A deficiency in a loan agreement that arises from a failure to uphold certain aspects of the loan terms other than the regularly scheduled payments. This indicates that the borrower may be in financial trouble, and can trigger an increase in a loan's interest rate, foreclosure or other negative events.
The failure to pay interest or principal on a loan or security when due. Occurs when a debtor is unable to meet the legal obligation of debt repayment, and it also refers to cases in which one party fails to perform on a futures contract as required by an exchange.
Earnings per Share (EPS)
The portion of a company's profit allocated to each outstanding share of common stock. Serves as an indicator of a company's profitability.
*Price to Earnings Ratio
The ratio for valuing a company that measures its current share price relative to its per-share earnings. Is also sometimes known as the price multiple or the earnings multiple.
The dollar amount an investor can expect to invest in a company in order to receive one dollar of that company's earnings.
Program by which a company buys back its own shares from the marketplace, usually because management thinks the shares are undervalued, reducing the number of outstanding shares. Increases EPS and can either be cancelled or held as treasury stock
Peer Group Analysis
Industry Group Analysis
process of assessing the viability of a new good or service through research conducted directly with the consumer. This practice allows a company to discover the target market and record opinions and other input from consumers regarding interest in the product.
Internal Market Statistics for NYSE
Advances in Stock
The number of stocks that closed at a higher price than the previous day's close
Declines in Stock
The number of stocks that closed at a lower price than the previous day's close.
Dow Jones Industrial Average (DJIA)
is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA was invented by Charles Dow in 1896.
a grouping of equities, indexes or other factors combined in a standardized way, which provides a useful statistical measure of overall market or sector performance over time. Investors also use the term "composite index."
index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is seen as a leading indicator of U.S. equities and a reflection of the performance of the large-cap universe.
a category of companies that provide services moving people, goods, or the infrastructure to do so.
a category of stocks for utilities such as gas and power. The sector contains companies such as electric, gas and water firms, and integrated providers.
Exchange- Traded Fund (ETF)
a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.
Describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.
Market liquidity refers to the extent to which a market, such as a country's stock market or a city's real estate market, allows assets to be bought and sold at stable prices.
the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms.
Investing vs. Lending
Return on Investment (ROI)
a performance measure, used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI measures the amount of return on an investment, relative to the investment's cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment.
Return on Assets (ROA)
an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. Return on assets is displayed as a percentage and its calculated as:
Net income/ Total Assets
Return on Equity (ROE)
The amount of net income returned as a percentage of SE. Measures a corporation's profitability by revealing how much profit a company makes with the money shareholders have invested
Where are extraordinary items booked and what are they?
*Sources and uses of Cash: Cash Flow Statement
*Use of Cash
when a mortgage borrower pays the principal and interest of a mortgage. In doing so, the borrower is paying down his debt. In general, paydown also refers to repayment of any outstanding loan. It could mean paying down a car loan, credit card debt, a school loan or any other type of debt.
are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. CapEx is often used to undertake new projects or investments by the firm. This type of financial outlay is also made by companies to maintain or increase the scope of their operations.
A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
Weighted Average Cost of Capital (WACC)
a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. A firm's WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk.
an equity security whose price is affected by the ups and downs in the overall economy. Cyclical stocks typically relate to companies that sell discretionary items consumers can afford to buy more of in a booming economy and cut back on during a recession. Contrast cyclical stocks with consumer staples, which people continue to demand even during an economic downturn.
Non- Cyclical Stocks
a stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market. Because of the constant demand for their products, defensive stocks tend to remain stable during the various phases of the business cycle. A defensive stock should not be confused with a "defense stock," which refers to stock in companies that manufacture things like weapons, ammunition and fighter jets.
a stock that tends to trade at a lower price relative to its fundamentals (e.g., dividends, earnings and sales) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
Momentum is the rate of acceleration of a security's price or volume. In technical analysis, momentum is considered an oscillator and is used to help identify trend lines.
The term "unicorn" was first popularized by the venture capitalist Aileen Lee, founder of CowboyVC, a seed stage venture capital fund based in Palo Alto, Calif. In her article, "Welcome to the Unicorn Club: Learning from Billion-Dollar Startups," she looked at software startups founded in the 2000s and estimated that only 0.07% of them ever reach $1 billion valuation. Those that do reach the $1 billion mark are so rare that finding one is as difficult as finding a mythical unicorn.
the act of trading in an asset or conducting a financial transaction that has a significant risk of losing most or all of the initial outlay with the expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of a huge gain, otherwise there would be very little motivation to speculate.
A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock held by the dollar value of one share of stock.
*Dividend Payout Ratio
The payout ratio is commonly calculated in one of two ways, either on a total basis, in which case the ratio is calculated by dividing the total amount of dividends paid out by the company's total net income, or on a per share basis where the formula used is dividends per share divided by earnings per share, or EPS.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns. Beta is also known as the beta coefficient.
A driver is a factor that has a material effect on the activity of another entity. Drivers affect change in their targets and occur at many levels of the economy and stock market. Macro drivers cause changes at the overall market level. Micro drivers cause change at the company level.
Value of a Company
Valuation is the process of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company's management, the composition of its capital structure, the prospect of future earnings and market value of assets.
A High-Return Investment Tool. A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. It is unlike an option in that a warrant is issued by a company, whereas an option is an instrument of the stock exchange
a temporary professional financial services alliance formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks. There are several different types of syndicates, including underwriting syndicates, banking syndicates and insurance syndicates.
"All- In" Costs
An all-in cost is every cost involved in a financial transaction. All-in costs can be used to explain the total fees and interest included in a financial transaction, such as a loan or CD purchase, or in a securities trade.
Capital Structure mix and weight
The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings.
Capital intensive refers to a business process or an industry that requires large amounts of money and other financial resources to produce a good or service. ... Companies in capital-intensive industries are often marked by high levels of depreciation and fixed assets on the balance sheets.
Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
Five Top Investment Banks
Goldman Sachs, Credit Suisse, Morgan Stanley, Merrill Lynch, Piper Jeffries
Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure; in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debt holders are paid in full.
A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.
A convertible bond is a type of debt security that can be converted into a predetermined amount of the underlying company's equity at certain times during the bond's life, usually at the discretion of the bondholder.
Same Store Sales (SSS)
Same-store sales is a financial metric that companies in the retail industry use to evaluate the total dollar amount of sales in the company's stores that have been operating for a year or more. Same-store sales statistics provide a performance comparison for the established stores of a retail chain over a given time period, such as a fiscal year or quarter or a calendar year or quarter, comparing revenues for the current period to the same period in the past.
Cash Flow per Share
Cash flow per share is the after-tax earnings plus depreciation on a per-share basis that functions as a measure of a firm's financial strength. Many financial analysts place more emphasis on the cash-flow-per-share value than on earnings-per-share values. While an earnings-per-share value can be easily manipulated, cash flow per share is more difficult to alter, resulting in what may be a more accurate value of the strength and sustainability of a particular business model.
Calculation = EBITDA/ Price per Share
Dilution is a reduction in the ownership percentage of a share of stock caused by the issuance of new shares. Dilution can also occur when holders of stock options, such as company employees, or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder owns a smaller, or diluted, percentage of the company, making each share less valuable.
Accretion is asset and earnings growth due to business expansion, and it can occur through a company's internal growth or by way of mergers and acquisitions. Accretion is also used to account for a capital gain when an investor buys a bond at a discount and holds the bond until maturity.
FAANG is an acronym for the market's five most popular and best-performing tech stocks, namely Facebook, Apple, Amazon, Netflix and Alphabet's Google. FAANG was born out of the original acronym, FANG, which did not have Apple included when CNBC's Jim Cramer coined the term.
A leaseback is an arrangement where the seller of an asset leases back the same asset from the purchaser. In a leaseback arrangement, the specifics of the arrangement are made immediately after the sale of the asset, with the amount of the payments and the time period specified. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement.
Economies of Scale
Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger factory will produce power hand tools at a lower unit price, and a larger medical system will reduce cost per medical procedure.
Economies of Scope
Economies of scope are economic factors that make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own. For example, McDonald's can produce both hamburgers and French fries at a lower average expense than what it would cost two separate firms to produce each of the goods separately. This is because McDonald's hamburgers and French fries can share the use of food storage, preparation facilities and so forth during production.
Rationalization is a reorganization of a company in order to increase its efficiency. This reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to particular products. Similar to a reorganization, a rationalization is more widespread, encompassing strategy as well as structural changes.
Normalized earnings are adjusted to remove the effects of seasonality, revenue and expenses that are unusual or one-time influences. Normalized earnings help business owners, financial analysts and other stakeholders understand a company's true earnings from its normal operations. An example of this normalization would be to remove a land sale from a firm's financial statements in which a large capital gain was realized.
A strategic acquisition is a subset of business combinations that involves the combining of two companies in order to gain market share or increase capital by the parent company. It is more focused on the outcome of the acquisition.
Growth rate a company can achieve by increasing output and enhancing sales internally. This does not include profits or growth acquired from takeovers, acquisitions or mergers.
Corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.
Corporate action in which a company reduces the total number of its outstanding shares. A reverse stock split involves the company dividing its current shares by a number such as 5 or 10, which would then be called a 1-for-5 or 1-for-10 split, respectively.
The creation of an independent company through the sale or distribution of new shares of an existing business or division of a parent company. A type of divestiture. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business.
Sets with similar terms
Other sets by this creator
MGT 3830 Banks, MidTerm
Fin 3353 Test 4
Chapter 8 & 9 MGT 3830(Banks)
FIN 3353 Test 3 Andrews