Asset allocation
The mix between bonds and equities in a capital market investment portfolio. A careful analysis of the investor's risk tolerance is a starting point for determining the optimal asset allocation.
Asset/liability management
The process of managing and coordinating the assets and liabilities held in an investment portfolio to maximize earnings and minimize risk. Whenever an investment portfolio utilizes borrowed funds as part of its overall strategy, the issue of asset/liabil
At the market (ATM) program
A type of stock sales program that allows listed companies to sell additional shares of company stock over time through a designated broker-dealer at the current or prevailing market price to raise additional capital.
Beta
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Capital asset pricing model (CAPM)
A model that describes one possible relationship between risk and the required rate of return on an asset. In the case of common stock, the CAPM is based on the concept that a sensible investor holds a diversified portfolio of stocks to mitigate risk. As
Capital lease
A type of lease that has terms that are different from those of operating leases. This is essentially an alternative to borrowing the funds and purchasing the asset in question. Also known as a financial lease or finance lease.
Capital preservation
An investment goal in which investors want to maintain the purchasing power of their investments while minimizing the risk of loss. While this is a suitable short-term investment management strategy, it may not always fit into the guidelines for capital i
Capital structure theory
A systematic approach to financing business activities through a combination of equities and liabilities.
Capital structure
The mix of long-term debt (in the form of term loans and various types of bonds) and equity (in the form of preferred stock, common stock, and retained earnings).
Cash dividend
The most common form of dividend payment, typically paid on a quarterly basis either by check or electronically.
Covariance
A measure of the degree to which returns on two assets/stocks move in tandem. A positive measure means that asset returns move together, while a negative measure means returns move inversely. A negative measure is a desired property for stocks in a portfo
Cumulative voting
A form of voting that allows a shareholder as many votes per share owned as there are open positions on the board in the same election.
Deemed dividend
A situation that occurs when payments on loans, sales of stock, or other transactions are interpreted by tax authorities as an attempt by a company to avoid paying taxes on dividends. The payments may be considered dividends and appropriate taxes charged.
Diversification
A method of managing risk by including a wide variety of investments with differing characteristics in a portfolio so that the risk of loss due to the failure of any one individual security is minimized.
Dividend declaration date
The date when the board of directors announces (declares) a dividend.
Dividend payment date
The date when a dividend is paid.
Dividend policy
A company's policy regarding whether to pay dividends and, if so, how much and when to pay. These are typically set by the CEO or board of directors, often with input from the treasurer.
Dividend record date
The date when shareholders of record are entitled to receive a declared dividend. Also known as a shareholder-of-record date, or just holder-of-record date.
Dividend reinvestment plan (DRIP)
A plan that enables existing shareholders to purchase additional shares directly from the company on a when-desired basis, normally with no commission or with only a small processing charge. These plans also allow investors to elect to reinvest dividends
Dividend signaling
A theory that dividends have information content or a signaling effect. Dividends are observed to contain information that signals management's intentions to investors and may provide information regarding expected future earnings.
Dual- or Multi- class stock
Stock issued in more than one class (e.g., Class A and Class B)
Duration
A measure of the number of years required to recover the true cost of a bond, considering the present value of all coupon and principal payments received in the future. In its simplest form, it is the weighted average time to receipt of all future cash fl
Ex-dividend date
The first date on which a stock is sold without entitlement to the upcoming dividend. The ex-dividend date is usually two business days prior to the shareholder-of-record date, thereby enabling brokerage firms to send an updated list of shareholders to a
Firm value
An economic measure reflecting the market value of a business. It is a sum of claims by all claimants: creditors (secured and unsecured) and shareholders (preferred and common).
Fixed/floating ratio
A ratio that provides a measure of interest rate risk utilizing a debt portfolio's mix of fixed-rate obligations relative to floating-rate obligations. Though duration is a more common measure of interest rate risk, many debt portfolio managers also use t
Flotation costs
The costs of issuing a security (usually the underwriting costs), not related to direct interest or equity costs.
Friendly acquisition
A situation in which a target company's management and board of directors agree to a merger or acquisition by another company.
Gordon growth model
A common stock valuation model used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. This model works well for firms that pay a steadily growing dividend. Also referred to as the dividend disc
Hostile takeover
The acquisition of one company (called the target company) by another (called the acquirer) that is accomplished by going directly to the company's shareholders or fighting to replace management to get the acquisition approved.
Intercompany dividend
A type of dividend used in large companies with wholly owned subsidiaries to transfer profits from subsidiaries back to the parent company.
Leveraged buyout (LBO)
A type of transaction in which an entity buys or acquires a firm using a significant amount of borrowed funds in the process. In many cases, the assets of the acquired company may be used as collateral for the borrowed funds.
Liquidating dividend
A dividend that is paid out of capital rather than earnings. This sometimes occurs when a company or one of its divisions is going out of business and management decides to pay off shareholders through this. As the name implies, the company liquidates the
Long-term investment
Any investment with a term greater than one year. See capital investment.
Operating lease
A type of lease that is established in such a way that the lessor may maintain the equipment and retain ownership thereof at the end of the lease. These arrangements are often done on an off-balance-sheet basis, meaning that lease payments are reflected o
Optimal capital structure
The mix of long-term debt and equity that produces the lowest overall weighted average cost of capital for a firm. Also known as a target capital structure.
Permanent capital
Capital that is made up of common stock. This type of capital is called permanent because (unlike loan capital) it is meant never to be paid back.
Preemptive right
A shareholder right that provides existing shareholders the first right to purchase shares of any new stock issue on a pro rata basis and based on the proportion of shares owned.
Proxy
An instrument by which a shareholder can assign his/her right to vote at the annual meeting to another individual.
Repatriation of capital
The transfer of funds from foreign subsidiaries back to the parent company in the home country.
Residual value
(1) The amount of value remaining after all allowable depreciation charges have been subtracted from a depreciable asset. (2) The estimated value of an asset at the end of a lease.
Risk-free asset
A type of asset that has a certain future return. US Treasuries (especially Treasury bills) are considered to be risk-free because they are backed by the US government.
Special dividend
A dividend that is paid on a one-time basis, rather than as a regular quarterly dividend.
Stock dividend
A dividend that pays shareholders additional shares of stock rather than cash dividends.
Stock repurchase
A practice where a company uses some of its profits to purchase existing shares of its stock, either on the open market or directly from shareholders. This usually tends to increase the price of the stock.
Stock split
A process in which a company replaces one existing share of stock with multiple shares of new stock. It is often done when a company's stock price is determined to be too high. The basic idea is to get the price of the stock down to a better trading range
Target capital structure
The specific capital structure that a company has set as its desired structure. This is typically the mix of debt and equity the company will use in raising new capital.
Thinly capitalized
A description of a company that has a very small amount of capital or initial investment in relation to the amount of business the company conducts. The term is often used by taxing authorities in referring to subsidiary companies run by foreign corporati
Transfer pricing
The setting of the price that subsidiaries of a large corporation charge one another for components sold among them.
Triple-net lease
A lease agreement in which the lessee pays all expenses of the underlying property, in addition to any rent payments to the property owner (lessor). These expenses usually include taxes, insurance, and maintenance costs.
Yield to call (YTC)
The yield a bond would provide if the issuer calls it prior to maturity. Since callable bonds usually are called only if interest rates have fallen, this is typically lower than the yield to maturity.
Yield to maturity (YTM)
The rate of return anticipated on a bond if it is held until the maturity date. This is considered a long-term bond yield expressed as an annual rate. The calculation takes into account the current market price, par value, coupon interest rate, and time t