ACG ch 8

accrued expense

an expense incurred but not yet paid in cash

accrued liability

a liability for an expense that has not yet been paid

bonds payable

groups of notes payable issued to multiple lenders called bondholders

callable bond

bonds that are paid off early at a specified price at the option of the issuer

capital lease

lease agreement in which the lessee assumes, in substance, the risks and rewards of asset ownership.

convertible bonds (or notes)

bonds or notes that may be converted into the issuing company's common stock at the investor's option

current portion of long term debt

the amount of the principal that is payable within one year

debentures

unsecured bonds-- bonds backed only by the good faith of the borrower.

discount (on a bond)

excess of a bond's face (par) value over its issue price

earnings per share (EPS)

amount of a company's net income per share of its outstanding common stock.

lease

rental agreement in which the tenant agrees to make rent payments to the property owner in exchange for the use of the asset.

lessee

tenant in a lease agreement

lessor

property owner in a lease agreement

leverage

using borrowed funds to increase the return on equity. Also called trading on the equity. It's successful when earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business.

market interest rate

interest rate that investors demand for loaning their money. Also called effective interest rate

operating lease

a lease in which the lessee does not assume the risks or rewards of asset ownership

payroll

employee compensation, a major expense of many businesses

pension

employee compensation that will be received during retirement

premium (on a bond)

Excess of a bond's issue price over its face (par) value

present value

amount a person would invest now to receive a greater amount at a future date

serial bonds

bonds that mature in installments over a period of time.

short term notes payable

note payable that is due within one year

stated interest rate

interest rate that determines the amount of cash interest the borrower pays and the investor receives each year

term bonds

bonds that all mature at the same time for a particular issue

times interest earned ratio

ratio of income from operations to interest expense. Measures the number of times that operating income can cover interest expense. (interest coverage ratio)
operating income/ interest expense

trading on the equity

earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business. Also called Leverage

underwriter

organization that purchases the bonds from an issuing company and resells them to its clients or sells the bonds for a commission, agreeing to buy all unsold bonds.

authorized stock

maximum number of shares a corporation can issue under its charter

board of directors

group elected by the stockholders to set policy for a corporation and to appoint its officers

book value (of a stock)

amount of owners' equity on the company's books for each share of its stock.

bylaws

constitution for governing a corporation

chairperson

elected by a corporation's board of directors, usually the most powerful person in the corporation

common stock

the most basic form of capital stock.

contributed capital

the amount of stockholders' equity that stockholders have contributed to the corporation. also called paid in capital

cumulative preferred stock

preferred stock whose owners must receive all dividends in arrears before the corporation can pay dividends to the common stockholders.

deficit

debit balance in the retained earnings account

dividend

distribution (usually cash) by a corporation to its stockholders

double taxation

corporations pay income taxes on corporate income. Then, stockholders pay personal income tax on the cash dividends that they receive from corporations.

issued stock

number of shares a corporation has issued to its stockholders

legal capital

minimum amount stockholders' equity that a corporation must maintain for the protection of creditors.

limited liability

no personal obligation of a stockholder for corporation debts.

liquidation value

the amount a corporation must pay a preferred stockholder in the event the company liquidates and goes out of business.

market value (of a stock)

price for which a person could buy or sell a share of stock

outstanding stock

stock in the hands of stockholders

paipar value

arbitrary amount assigned by a company to share of its stock

preferred stock

stock that gives its owners certain advantages, such as the priority to receive dividends before the common stockholders and the priority to receive assets before common stockholders if the corporation liquidates

president

chief operating officer in charge of managing the day to day operations of a corporation

rate of return on common stockholders' equity

net income minus preferred dividends, divided by average common stockholders' equity. a measure of profitability. Also called return on equity

rate of return on total assets

net income plus interest expense divided by average total assets. this ratio measures a company's success in using its assets to earn income for the persons who finance the business. Also called return on assets

redeemable preferred stock

a corporation reserves the right to buy an issue of stock back from its shareholders, with the intent to retire the stock

redemption value

the price a corporation agrees to eventually pay for its redeemable preferred stock, set when the stock is issued

retained earnings

the amount of stockholders' equity that the corporation has earned through profitable operation of the business and has not given back to stockholders

shareholders

persons or other entities that own stock in a corporation.

stated value

an arbitrary amount assigned to no par stock; similar to par value

stock

shares into which the owners' equity pf a corporation is divided

stock dividend

a proportional distribution by a corporation of its own stock to its stockholders

stockholders' equity

the stockholders' ownership interest in the assets of a corporation

stock split

an increase in the number of authorized, issued, and outstanding shares of stock coupled with a proportionate reduction in the stock's par value.

treasury stock

a corporation's own stock that it has issued and later reacquired