The Accounting Equation forms the foundation of the balance sheet and illustrates how assets, liabilities, and equity are interrelated, ensuring that the balance sheet remains balanced.
Assimilation in finance refers to the absorption of a new issue of stock by the investing public after all shares have been sold by the issue's underwriters.
Also known as the accounting equation, the balance sheet equation is the foundational formula that forms the basis of double-entry bookkeeping: Assets = Liabilities + Equity. This equation ensures that a company's financial statements are balanced, indicating that all resources (assets) owned by the company are financed either by borrowing (liabilities) or by investing funds (owner’s equity).
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.
Bonus shares are additional shares issued to existing shareholders of a company at no extra cost, based on the number of shares that a shareholder already owns.
Understand the various means used by companies to raise finance including shares, debentures, loans, options, and warrants, and the important distinctions and regulations that govern them.
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.
In the USA, capital surplus refers to the difference between the par value of a share and its issue price. It is the equivalent of a share premium in the UK.
Convertible securities can be crucial financial instruments for both investors and companies, offering the potential for conversion into common stock under specific conditions.
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 entry is made on the right-hand side of an account, representing an increase in a liability, revenue, or equity item, or a decrease in an asset or expense.
Cumulative Preferred Stock is a type of preferred stock where omitted dividends must be paid out before any dividends can be paid to common stockholders.
In accounting, a debit (DR) refers to any entry recording an addition to an asset or expense account, or a reduction from a liability or equity account.
An essential accounting term used in double-entry bookkeeping to record increases in assets or expenses and decreases in liabilities, revenues, or equity.
A financial ratio illustrating the proportional relationship between a company's debt and its equity, reflecting its financial leverage and risk.
Earned Surplus, also known as Retained Earnings, represents the portion of net income that is retained by a company rather than distributed to its shareholders as dividends. These retained earnings are reinvested in the business or used to pay off debt.
An equitable owner is the beneficiary of property held in trust, enjoying the benefits of ownership without holding legal title.
Equity represents a beneficial interest in an asset, net asset value, or shareholders' interest in a company. It is a critical component in personal finance, corporate finance, and accounting.
A financial metric that shows the ratio of a company's equity to its debt, providing insights into how a company finances its operations and growth.
Euroclear is a pan-European provider of clearing, settlement, and related services for bond, equity, and investment-fund transactions. Based in Brussels, it was set up in 1968 by the US bank J. P. Morgan.
The financial position of a firm reflects the status of its assets, liabilities, and equity accounts as of a certain time. This is depicted on its financial statement and is also known as financial condition.
The financial structure of a company refers to the specific mixture of long-term debt and equity that it uses to finance its operations. Understanding financial structure is crucial for evaluating financial health and making strategic business decisions.
The shares issued to the founders of a company, often carrying special dividend rights and voting rights, offering an incentive for sustained involvement and control by the original founders.
A free issue, also known as a scrip issue, is a process wherein a company issues additional shares to its existing shareholders without any extra cost, based on the number of shares that shareholders already own.
A Fully Paid Share is a share on which the full nominal or par value has been paid by the shareholder, including any premium. Such shares denote that the shareholder has no further financial obligation towards the company concerning the initial capital amount.
Gearing ratios, also known as leverage ratios, measure the relationship between a company's capital structure, particularly its debt and equity. These ratios are crucial for assessing a company's financial stability and risk level.
Homeownership refers to the state of living in a structure that one owns, rather than renting or serving as a tenant. Owning a home provides financial stability and potential asset appreciation over time.
Hybrid Financial Instruments are synthetic financial instruments formed by combining two or more individual financial instruments, such as a bond with a warrant attached. They blend features of both debt and equity, providing the benefits of both categories.
A legal doctrine meaning 'equally at fault', where neither party in an illegal contract or transaction is able to obtain legal relief if both parties are equally culpable. Exceptions exist if the parties are not equally at fault.
An involuntary trust, also known as a constructive trust, is a legal relationship recognized by courts that arises due to the association between parties, even in the absence of a formal written trust document.
A junior issue refers to a type of debt or equity that is subordinate in claim to another issue, particularly in terms of dividends, interest, principal, or security in the event of liquidation.
Jurisprudence, often referred to as the science or philosophy of law, encompasses the study of the structure of legal systems, the principles underlying these systems, and the course of judicial decisions.
Large-cap stocks, also known as big-cap stocks, are shares of companies with a large market capitalization, typically $5 billion or more.
Leverage ratios are financial metrics that evaluate the level of debt a business is using compared to its equity and assets. These ratios are crucial for analyzing the financial health and sustainability of companies.
A leveraged company is a business that has debt in addition to equity in its capital structure. The term is often used to describe companies that are highly leveraged, typically industrial companies with more than one-third of their capitalization in the form of debt.
A merger involves the combination of two or more businesses on an equal footing to create a new entity where shareholders mutually share risks and rewards without any party obtaining control over another.
Finance that lies between pure equity and pure debt, often used in management buy-outs. It can take various forms, is usually provided by specialist financial institutions, and offers higher returns than pure debt but lower returns than equity.
Shares issued without any payment, typically as a result of a rights issue, often used by companies as a means to raise capital.
No-par stock is issued without a par value stated in the corporate charter or on the stock certificate. It is also known as no-par-value stock.
Non-Controlling Interest (NCI) is a term in International Financial Reporting Standards (IFRS) used to describe the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent company.
An ordinary share is a type of equity ownership in a company that typically provides its holder with voting rights and a share of the company's profits.
Original equity refers to the amount of cash initially invested by the underlying owner in a venture or business. It is distinct from sweat equity and capital calls.
Other Comprehensive Income (OCI) represents gains and losses that are not included in net income on the income statement but are reported in the equity section of the balance sheet.
Outstanding shares represent the total number of a company's shares that are currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.
Performance stock, also known as growth stock, refers to equity in companies perceived by investors as having potential for significant value appreciation. These stocks usually either pay small dividends or no dividends at all.
Permanent financing refers to long-term financing options available in both corporate finance and real estate, ensuring sustained capital over extended periods through debt or equity instruments.
Profitability and profitability ratios are essential metrics used to measure the efficiency and success of a business in generating earnings relative to various financial aspects like sales, assets, and equity.
Financial metrics used to measure a company's ability to generate profit relative to other key variables, such as sales, assets, or equity.
A publicly traded corporation, also known as a publicly held corporation, is a company that has sold a portion of itself to the public via the issuance of stock on a stock exchange, allowing for liquidity and access to capital.
Registered capital, also referred to as authorized share capital, is the maximum amount of share capital that a company is authorized to issue to shareholders as stated in its corporate charter.
A share warrant is a financial instrument that gives the holder the right, but not the obligation, to purchase company stock at a specified price before a warrant expiration date.
A shareholder, also known as a stockholder, is an individual or entity that legally owns one or more shares of stock in a public or private corporation. Shareholders are entitled to certain rights, such as voting on corporate matters and receiving dividends, if distributed.
Shareholder debt refers to the financial obligations incurred by a company to its shareholders, where interest paid on this debt is tax-deductible. It is commonly used in highly leveraged funding arrangements typically associated with private equity firms.
In accounting, the Statement of Financial Position is an important financial statement that provides a snapshot of a company's financial health at a specific point in time. It is often referred to as a balance sheet and is critical for understanding the assets, liabilities, and equity of a business.
A financial statement that combines the income statement and the statement of retained earnings, detailing a company's profit, dividends, and equity changes during a period, as outlined by the Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102, Section 6).
A stock split increases the number of a corporation's outstanding shares while making the stock more marketable, without altering shareholders' equity or the overall market value at the time of the split.
Stock transfer refers to the process of transferring the ownership of stock or shares from one person to another. It's a critical mechanism in corporate finance that enables the buying and selling of company shares in the stock market.
A stockholder, also referred to as a shareholder, is an individual or organization that holds at least one share of a company's stock, granting them fractional ownership in the corporation.
In the USA, individuals, businesses, and groups that own stocks in a corporation are known as stockholders. They hold a portion of the corporation's equity.
Stockholders' equity represents the ownership interest of shareholders in a corporation, calculated as the difference between total assets and total liabilities.
A contractual right allowing existing shareholders to purchase additional shares of a new issue of common stock before it is offered to the public, aiding in preemptive protection against dilution of ownership.
Total capitalization refers to the comprehensive capital structure of a company, including long-term debt and all forms of equity. It reflects the total amount of capital a company has raised through debt and equity instruments to fund its operations and growth.
Unissued share capital refers to the portion of a company's authorized share capital that has not yet been issued to shareholders. It is the difference between the authorized share capital and the issued share capital.
Voting right refers to the entitlement of a common shareholder to vote on the corporate affairs of a company either in person or by proxy.
Voting stock refers to shares in a corporation that entitle the shareholder to participate in voting on matters such as electing the board of directors, mergers, acquisitions, and other significant corporate policies.
