Annual rate of return

If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (A.P.R.). The annual percentage yield (A.P.Y.), is used to include the affect of compounding interest.

Authorised shares

Number of shares authorised for issuance by an enterprise’s corporate charter.

Back-to-back financing

An inter-company loan channelled through a bank.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a specific time period and repay the other's currency at an agreed upon maturity.

Balance sheet

Also called the statement of financial condition, it is a summary of a company's assets, liabilities, and owners' equity.

Bankruptcy

State of being unable to pay debts. The ownership of the enterprise’s assets is transferred from the stockholders to the bondholders.

Basis point

In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.

Bear

An investor who thinks the market will fall.

Bill of exchange

General term for a document demanding payment.

Bond points

A conventional unit of measure for bond prices set at $1 and equivalent to 1% of the $100 face value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

Bull

An investor who thinks the market will rise.

Bullet loan

A bank term loan that is repayable at maturity.

Cap

An upper limit on the interest rate.

Capital expenditure

Amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.

Debenture bond

An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt.

Derivative instruments

Contracts such as options and futures whose price is derived from the price of the underlying financial asset.

Direct placement

Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors.

Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.

Due diligence

The analysis and appraisal of a business in preparation for a flotation or venture capital investment. Investors have a right to expect that these investigations are carried out thoroughly.

Equity

Represents ownership interest in an enterprise.

Events of default

Contractually specified events that allow lenders to demand immediate repayment of a debt.

Financial analysts

Also called securities analysts and investment analysts, professionals who analyse financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks

Financial engineering

Combining or dividing existing products to create new financial products.

Hedge

A transaction that reduces the risk of an investment.

Insider information

Material information about an enterprise that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.

Insolvent

An enterprise that is unable to pay its debts.

Lead manager

The commercial or investment bank with the primary responsibility for organising syndicated bank credit or bond issued. The lead manager recruits additional lending or underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.

Option

Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of a class of securities called derivatives, so named because these securities derive their value from the worth of an underlying investment.

Portfolio

A collection of investments, real and/or financial.

Private placement

The sale of a bond or other security directly to a limited number of investors. Used in the context of general equities. For example, sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company, avoiding the need for the registration with the regulator if the securities are purchased for investment as opposed to resale.

Prospectus

A document containing company information in connection with a new issue.

Public offering

Shares may be offered to the public at a fixed price in an advertised offer for sale. Those who purchase the shares are said to have subscribed, i.e. it is an offer for subscription.

Return on equity

Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use R.O.E. as a measure of how a company is using its money.

Secondary market

The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. The New York Stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets.

Subordinated

Of a liability, ranked below another liability in order of priority for payment.

Time value of money

The concept that currency today is worth more than currency in the future, because money received today can earn interest up until the time the future money is received.

Yield

The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond.