Accounting profit refers to the amount of profit calculated using generally accepted accounting principles (GAAP) rather than tax rules. It represents the revenue for an accounting period less the expenses incurred, utilizing the concept of accrual accounting. There are several theoretical and practical challenges in determining this profit, leading to a certain variability in its measure.
The Accumulated Benefit Obligation (ABO) is a company's pension obligation that accounts for the current value of benefits earned by participants up to a given date, calculated using current salaries and service years, without considering future salary increases. This financial metric is critical in assessing the financial health and obligations of a company's defined benefit pension plan.
An acquisition occurs when one company takes over controlling interest in another company. This strategy is often employed to achieve specific business objectives such as expanding market share, gaining new technologies, or reducing competition.
ACT stands for both Association of Corporate Treasurers and Advance Corporation Tax in the realm of accounting, each holding significant importance in different contexts.
Additional Paid-In Capital (APIC) represents the excess amount received by a company from investors over the par value of its issued stock.
Adjusted Present Value (APV) is a technique combining the all-equity net present value of an investment with additional value adjustments relating to specific financing elements like tax concessions.
A guarantee that ensures any advance payments made by a customer will be reimbursed if the company cannot fulfill its contractual obligations.
An agreed bid is a takeover bid that is supported by a majority of the shareholders of the target company, whereas a hostile bid is not welcomed by the majority of the shareholders of the target company.
Allotted shares are distributed to new shareholders through the process of allotment, forming part of the allotted share capital. They are essential for companies as they raise capital by issuing these shares to investors.
An increase, reduction, or any other change in the share capital of a company. Alteration of share capital includes processes like consolidation, subdivision, and cancellation of unissued shares.
Altman's Z-Score is a financial formula developed by Edward I. Altman in the 1960s that is used to predict the likelihood of a company entering bankruptcy within the next two years. Utilizing multiple corporate income and balance sheet values, this score provides an insight into the financial stability of a business.
Annual Debt Service refers to the required annual principal and interest payments for a loan. In corporate finance, it is the cash required in a year for payments of interest and current maturities of principal on outstanding debt.
Assented stock refers to a security, typically an ordinary share, where the owner has agreed to the terms of a takeover bid. Different prices may be offered for assented and non-assented stock during takeover negotiations.
A ratio that provides a measure of the solvency of a company; it consists of its net assets divided by its debt. Those companies with high asset cover are considered more solvent.
Asset deficiency is a financial condition where a company's liabilities exceed its assets, raising concerns about the organization's financial viability.
The Band of Investment is a finance and investment principle that refers to the weighted average of debt and equity rates used to estimate the cost of capital for a business or project.
A bank certificate is a document signed by a bank manager that certifies a company's account balance on a specified date. It is often requested during audits to verify a company's financial status.
Large corporations in the United States characterized by having assets totaling billions of dollars, playing a crucial role in the national and global economy.
A method of reducing bank charges in which two related companies offset their receipts and payments with each other, usually monthly, to save on transaction costs and paperwork.
The Blended Value refers to the average value of tendered stock and residual stock in a self-tender offer. It provides a sense of the overall valuation effectiveness of such tenders.
Bonded debt refers to the portion of a corporation's or government's overall debt that is represented by bonds it has issued. It specifically concerns the indebtedness that is contracted under the obligation of these bonds.
A bonus dividend is a special dividend issued to shareholders in addition to the regular dividends, often due to extraordinary circumstances such as a takeover or exceptionally high profits.
A bonus issue is the issuance of additional shares to existing shareholders at no cost, based on the number of shares that a shareholder already owns. It's also known as a scrip issue.
A bootstrap acquisition is a type of buyout where the buyer uses the target company's excess cash or liquid assets to help finance the acquisition.
The Bought Ledger, also known as Creditors’ Ledger, is a sub-ledger accounting record that details all the credit purchases a company makes from its suppliers, providing a clear view of all owed amounts and due dates.
Break-up value represents the asset value assuming an organization discontinues its business operations. Typically calculated for assets sold piecemeal, the break-up value encompasses the asset value per share and can affect financial decision-making.
A budget deficit occurs when expenditures exceed income, and it can affect governments, corporations, and individuals. It necessitates funding solutions like issuing treasury bonds or reducing expenses.
A budget director is responsible for the administration of the budgetary control process within an organization. They coordinate the flow of information between budget centers, the budget committee, and the board of directors.
Budget slack refers to the excess funds that managers intentionally create by overestimating costs or underestimating revenues in budget preparation, often aiming to meet performance evaluations or safeguard against uncertainties.
Business meals are meals that are consumed during the course of business operations, and can include client entertainment, business meetings, and meals during travel. They are typically deductible expenses under certain tax regulations.
In corporate acquisitions, a bust-up acquisition is a strategy where a raider sells some of the acquired company's assets to finance the leveraged acquisition.
A buy-out, also known as a buyout, refers to the purchase of a substantial holding in a company, often by its existing managers or employees. This enables the acquiring party to gain greater control or full ownership of the company.
A buyout involves purchasing at least a controlling percentage of a company's stock to take over its assets and operations. It can be accomplished through negotiation or a tender offer.
Called-up share capital refers to the part of issued share capital that has been requested to be paid by the shareholders. This term is relevant when dealing with partly paid shares.
Capital calls are requests for additional money required of investors to fund a deficit. A corporate stockholder has no legal obligation to meet a capital call.
Capital contributed in excess of par value represents the amount paid for stock above its stated par value, as reflected in the owner's equity section of a balance sheet.
Capital contribution refers to the cash or property acquired by a corporation from a shareholder without the receipt of additional stock. This amount is added to the basis of the shareholder's existing stock, and the corporation's basis is carried over from the shareholder.
Capital distribution refers to the distribution of company’s funds to its shareholders. This usually happens in the form of dividend payments, share buybacks, or return of capital. It signifies how a company returns value to its shareholders.
Capital Expenditure (CapEx) refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. It is often used to undertake new projects or investments by the firm.
A Capital Expenditure Budget plans for significant investments in long-term assets, covering the costs of major projects or purchases essential for sustaining or growing an organization's operations.
Capital paid in excess of par value refers to the amount of money shareholders have invested in a company that exceeds the par value of the issued shares. This extra amount is often reflected on the equity section of the balance sheet and signifies additional capital that the company can use for growth and operations.
Capital stock represents the equity shares held in a corporation. In the USA, the two fundamental types of capital stock are common stock and preferred stock.
A capitalization issue, also known as a scrip issue, involves a company issuing new shares to existing shareholders, usually to bolster additional funds or to distribute reserves.
The Cash Flow to Capital Expenditure (CapEx) Ratio analyzes a company's ability to maintain its plant and equipment using cash generated from its operations, excluding dividends, rather than relying on external borrowing.
The Chart of Accounts (CoA) is a detailed listing of all the individual accounts used by an organization’s accounting system, providing a structured framework for categorizing transactions and financial data.
The Chief Financial Officer (CFO) is a senior executive responsible for managing the financial actions, planning, and reporting of an organization. This role includes overseeing financial planning, financial risk management, record-keeping, and financial reporting.
A Chief Financial Officer (CFO) is a corporate officer responsible for managing the financial actions of a company, including financial planning, management of financial risks, record-keeping, and financial reporting.
A Close Corporation Plan consists of a pre-arrangement that ensures surviving stockholders can purchase the shares of a deceased stockholder based on a pre-determined formula, thereby maintaining control of the corporation within the existing shareholder group.
A Comfort Letter, often known as a Letter of Comfort, is a document provided by an accounting firm, lawyer, or financial institution to assure the recipient about the financial stability or intention of a company or individual.
A Company Voluntary Arrangement (CVA) is a legally-binding arrangement between a company and its creditors to restructure debt. This process helps businesses avoid bankruptcy by agreeing to pay back a portion of what they owe over a fixed period.
Concentration banking is a financial management strategy aimed at accelerating cash collections from customers by utilizing a network of regional banks, from which funds are transferred to a central main concentration account.
The term 'concession' can refer to various business arrangements, such as small shops in lobbies, government-granted rights, rent reductions, or compensation in corporate underwriting.
Consolidated accounts are financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as if the entire group were a single entity.
A consolidated financial statement brings together all assets, liabilities, and other operating accounts of a parent company and its subsidiaries, providing an integrated view of the entire corporate group’s financial status.
The Consolidated Statement of Cash Flows - A Key Financial Document Showing Combined Cash Flow Activities in Entities for Investors
Corporate reorganization involves significant changes in the structure of a corporation through mergers, acquisitions, divisive acquisitions, or other forms of restructuring.
Corporation Tax (CT) is a tax imposed on the profits of corporations or businesses. This tax is calculated and administered by national governments and varies widely between countries.
The term 'cover' has multiple meanings in finance and corporate terms, commonly associated with buying back shorted positions, meeting fixed financial obligations, and the net-asset value supporting a security.
A credit analyst is a professional responsible for evaluating the financial affairs of individuals or corporations to determine their creditworthiness. They assess the risk associated with lending and determine credit ratings.
In corporate mergers and acquisitions, the term 'crown jewels' refers to the target company's most desirable and valuable properties. The disposal or sale of these assets can significantly reduce the company's overall value and attractiveness as a candidate for takeover.
A cumulative dividend is a feature often associated with preferred stock, entitling holders to receive dividends in arrears before any dividends can be paid to common stockholders.
A type of preference share that entitles the owner to receive any dividends not paid in previous years, guaranteeing eventual payment before ordinary shares are addressed.
An agreement specifying the rights of debenture holders, often including the power to appoint a receiver in cases of company default.
A debt instrument is a document used to raise non-equity finance, typically consisting of a promissory note, bill of exchange, or any other legally binding bond.
Debt retirement refers to the repayment of outstanding debt, which is often achieved through mechanisms such as sinking funds, amortization, or prepayment. It is essential for managing corporate and personal finance efficiently.
Debt service coverage is a critical financial metric used in corporate, government, personal, and real estate finance to measure the availability of cash flow for meeting annual debt obligations.
The debt/equity ratio is a financial metric that indicates the relative proportion of a company’s debt to its total equity. It demonstrates how leveraged a company is in terms of its debt financing compared to its equity financing.
Irrevocably committing specific assets to meet long-term obligations, providing a method to eliminate liabilities from a company's balance sheet that cannot be repaid early.
A defended takeover bid refers to an acquisition attempt where the directors of the target company actively oppose the bid, employing various defenses to prevent the takeover.
A ratio that demonstrates the ability of a business to satisfy its current debts by calculating the time for which it can operate on current liquid assets, without needing revenue from the next period's sales.
Deleveraging is the process by which an entity reduces its level of debt by rapidly selling off assets or paying down loans, often in response to financial stress or in pursuit of a stronger balance sheet.
Disinvestment refers to the process of reducing investment in a particular activity, asset, company, or location. Often used in the context of government policies and corporate strategy, it involves selling off or liquidating assets to reallocate resources more effectively.
A disproportionate distribution occurs when some shareholders receive cash or other property while others see an increase in their proportionate interests in the assets or earnings and profits of the corporation. This typically leads to an unequal allocation of the corporation's resources among its shareholders.
Dividend cover, or dividend coverage ratio, is a financial metric indicating how many times a company can pay dividends to its ordinary shareholders out of its net profits after tax in the same period. It measures the sustainability of dividend payments.
A dividend in specie refers to a type of dividend that is paid out in forms other than cash. Typically, this can include the distribution of assets, shares, property, or any other physical items that represent the value payable to shareholders.
The Dividend Payout Ratio is a financial metric that shows the percentage of earnings a company pays to its shareholders in the form of cash dividends. It helps assess a company's maturity and capital allocation strategy.
A company's predetermined approach on managing the distribution of profits to its shareholders versus retaining earnings for reinvestment in the business.
A Dividend Reinvestment Plan (DRP) is an option offered by companies that allows shareholders to automatically reinvest their cash dividends by purchasing additional shares or fractional shares of the company's stock.
The choice by a major shareholder to forgo receiving dividend payments from a company, typically made when the company is facing financial constraints.
In the USA, donated capital refers to a gift of an asset to a company. The value is credited to a donated-capital account, which is a stockholders' equity account.
Fully paid capital stock of a corporation contributed without consideration to the same issuing corporation. Donated stock is generally classified as capital stock and can impact both the financial and operational aspects of the corporation.
Duff & Phelps is an independent financial advisory firm, established in 1932, known for providing valuation, corporate finance, and other financial consulting services.
Earnings Before Taxes (EBT) measures a company's profitability, calculated as sales revenues minus cost of sales, operating expenses, and interest expenses, before taxes have been deducted.
Total debt owed by a firm, including the capitalized value of lease payments, providing a comprehensive overview of a company's financial obligations.
Effective Net Worth is the sum of a firm's net worth and its subordinated debt, providing a more comprehensive view of financial health from the perspective of senior creditors.
A comprehensive metric frequently used to measure the value of a business in its entirety, incorporating both equity and debt.
Equity Share Capital refers to the portion of a company's capital that is raised in exchange for shares, representing ownership stakes in the company. This differs from non-equity shares which may include debt or preferred stock.
Short-term notes issued by firms and denominated in currencies of countries other than the one in which they are sold. These instruments are used for funding working capital and are an integral part of the global money market.
EV can stand for Enterprise Value, Economic Value, or Expected Value, each significant within their respective contexts in finance and accounting.
The enterprise value (EV) of a company divided by its earnings before interest, taxation, depreciation, and amortization (EBITDA). This ratio is a crucial metric for assessing a company's overall financial health and investment potential.
External funds are financial resources that a company secures from outside its organization to support its operations, typically through means like bank loans, bond offerings, or venture capital infusions.
An extra dividend is an additional payment made to shareholders on top of the regular dividend, typically awarded after a particularly profitable year to reward shareholders and foster loyalty.
A facility is an agreement between a bank and a company that grants the company a line of credit with the bank. This can either be a committed facility or an uncommitted facility.
A finance vehicle is a specialized financial entity that organizations use to achieve certain fiscal or operational advantages, such as minimizing tax liabilities or securing funding.
A financial expense is an outlay of funds recorded in a company's financial records, rather than cost records. Common examples include interest paid on borrowed funds and directors' fees.
Financial leverage refers to the use of debt in a firm's capital structure to amplify the returns on equity. It is an essential concept in corporate finance that can significantly impact a company's earnings and risk profile.
The branch of financial economics that is concerned with questions of business funding and the management of a business in the interests of shareholders, ensuring effective allocation of resources and maximizing shareholder value.
Quantitative measures that help determine whether a company or group is likely to meet its financial obligations, including interest, dividends, and capital repayments.
The Fixed-Charge Coverage Ratio measures a firm's ability to meet its fixed financial obligations, including interest payments on long-term debt and other contractual commitments, relative to its earnings before interest and taxes.
A floating charge is a security interest over a pool of changing assets of a business, which ‘floats’ until it crystallizes and attaches to specific assets of the company.
