Accounts Receivable Financing

Short term loan where accounts receivable are pledged as security for the loan.

Accounts Receivable Turnover

This is the ratio obtained by dividing total credit sales during an accounting period by average accounts receivable during that same period. The ratio indicates the number of times the receivables have been collected during the accounting period.

Accredited Investor

An investor wealthy enough to be exempt from SEC registration requirements. Generally, individuals or married couples need a minimum net worth of one million dollars or annual income of $200,000 for an individual, or $300,000 for a married couple for each of the two most recent years with the reasonable expectation that the minimum requirement will be met in the current year.

Affiliate

Two corporations are affiliated when one owns less than a majority of the voting stock of the other, or when they are both subsidiaries of the same corporation. A Subsidiary is always an Affiliate, but Subsidiary is always the preferred term.

Affiliated Person or Control Person

Someone who is in a position to exert direct control over the actions of a corporation. These persons include owners of 10% or more of the voting stock, senior level officers, directors, and people who are in a position to exert influence through them.

Aftermarket

Refers to trading of a security after the Initial Public Offering.

Aggressive Accounting

This can mean overstating revenue in order to increase net income, or overstating expenses in order to reduce taxable income. Sometimes losses are hidden within subsidiaries. Other times, capital expenditures are written off as expenses. Also called "cooking the books." Often the purpose is to inappropriately inflate the price of the stock.

AICPA

American Institute of Certified Public Accountants.

Air Pocket Stock

A stock that falls sharply usually after negative publicity, unexpected low earnings, or a loss.

Alien Corporation

A corporation incorporated under the laws of another country but operating in the United States. Compare to Foreign Corporation.

Alligator Property

A real estate investment with a negative cash flow.

Annuity

A contract sold by a life insurance company that guarantees a fixed or variable payment at a determined point in time.

Asked Price

The price at which a security is offered for sale on an exchange or in the Over the Counter market. Also called the Ask Price, Asking Price and Offering Price.

Asset Based Loan

This is a loan normally secured by accounts receivable, inventory, or balance sheet assets such as machinery or equipment. Interest rates on Asset Based Loans tend to be lower than unsecured loans because the lender has collateral that can be seized and liquidated if the loan is not repaid when due. Asset Based Loans are made by Finance Companies and Commercial Banks.

Asset Play

A stock that is desirable to purchase because the current price does not reflect the corporation's assets. Asset Play stocks are often takeover targets because they provide a way to acquire assets inexpensively.

Asset Stripper

This is a corporate raider that sells off major assets after acquiring control of a company. The proceeds are usually used to repay debt resulting from the acquisition. The object is to pay off the debt and still own a valuable operating company or other valuable assets.

Asset Test Ratio

See Quick Ratio.

Asteroid Event

This is an event that is nearly impossible to adequately prepare for, that occurs suddenly, and is a worst case scenario. It is the type of event that would likely make the corporation's stock price dive. An example would be the indictment of the CFO for securities violations.

Authorized Shares or Authorized Stock

The maximum number of shares of stock a corporation can issue under the terms of its Articles of Incorporation. A corporation is not required to issue all of its authorized shares of stock. Sometimes a corporation will hold back authorized stock for future acquisitions or other purposes.

Bank mail

A bank's agreement with a corporation attempting a takeover that it will not provide financing to support the bid of another firm.

Barter

The trading of goods and / or services for other goods and / or services. The use of money is not required except to possibly balance accounts. The use of barter is growing all over the world.

Bear

A person who believes stock prices will decline. See Bull.

Bearer Bonds or Coupon Bonds

Bonds not registered in the records of the issuing corporation. Bearer bonds are negotiable without endorsement. They are transferred by simple endorsement. Bearer Bonds have coupons attached which must be presented to the corporation before dividends will be paid. Most bonds are registered.

Bid

The price a prospective buyer is willing to pay for a security.

Bid and Asked

Bid is the highest price a prospective buyer is willing to pay for a security and Asked is the lowest price the seller will accept. Together, the two prices are a Quotation with the difference being the Spread. While the concept of Bid and Asked is involved in all trading of securities, the terms Bid and Asked almost always refer to unlisted OTC securities.

Bearer Stock

Stock not registered in the records of the issuing corporation. Bearer Stock certificates are negotiable without endorsement. They are transferred by simple delivery. All stock of California corporations is registered.

Blue Chip Stock

Stock of a nationally known corporation with a long history of growth, profits, and reliable dividends. Such firms also have a reputation for having high quality management, products, and services.

Board of Advisors

A Board of Advisors is an informal, less costly alternative to a Board of Directors. It is intended to enhance a firm's ability to grow, its credibility, and reputation. Unlike directors, advisory board members do not owe a fiduciary duty to the company and generally have no liability. Consequently, they do not require coverage, under a Directors and Officers Liability Policy and usually receive far less compensation than directors.

Bottom Fisher

Investor who buys stocks that have fallen to a very low level. Sometimes Bottom Fishers buy stocks of corporations that are facing possible bankruptcy because of the extremely low price per share.

Call Price

The price at which a bond can be called or redeemed. It is generally higher than the par value with the difference being the Premium.

Call Protection

This is the length of time during which a bond cannot be called or redeemed. See Call Risk.

Call Risk

This is the risk to a bondholder that a bond may be redeemed before its maturity. The risk to the bondholder is that the bond cannot be replaced with the same yield because rates have declined. Bonds are called because they can be replaced at a lower cost.

Capital Asset

An asset not purchased or sold in the normal operation of the business. It is considered a long term asset or fixed asset. Examples include buildings, equipment, and furniture.

Captive Finance Company

This is usually a Subsidiary of a corporation used to finance the purchase of goods from the parent company. An example would be Ford Motor Credit.

Certified Financial Statements

These are financial statements accompanied by an opinion from a Certified Public Accountant.

Cigar Butts

Refers to corporations that have little value but are still good investments because the share price is far below the book value per share. The strategy of acquiring Cigar Butt corporations is used almost exclusively by liquidators. The comparison to a Cigar Butt is made because the corporation usually has "one puff of smoke remaining."

Closed Corporation or Privately Held Corporation

A Closed Corporation is a corporation with only a few shareholders often members of a family. There is no public market for such stock.

Closely Held Corporation

A Closely Held Corporation is a corporation where most of the voting stock is owned by only a few stockholders but some shares are owned publicly.

Collection Ratio

This is the ratio of a firm's average accounts receivable to its average daily sales. Average daily sales are divided into average accounts receivable to determine the average number of days it takes to convert sales to cash. See Accounts Receivable Turnover.

Commercial Paper

Short term notes with maturities of 2 to 270 days issued by corporations with excess cash. The notes are unsecured and are usually sold at a discount. Corporations that issue Commercial Paper usually have a line of credit as a backup. Commercial Paper interest rates are generally lower than bank rates.

Common Stock Ratio

This is the percentage of total capitalization represented by the common stock. A high percentage indicates a lack of leverage and a high degree of safety in the event of a liquidation. Companies with stable earnings can more safely leverage their capital structure so as to increase the return on capital.

Conglomerate

This is a corporation consisting of divisions or subsidiaries involved in a wide variety of businesses. These businesses may or may not be related to each other from an operations standpoint.

Consolidated Financial Statement

A financial statement that consolidates all income, expenses, assets and liabilities of a Parent Corporation and its Subsidiaries.

Controller or Comptroller

This person is the chief accountant for a firm and may also serve as Treasurer in smaller firms.

Contingent Liability

A liability that arises only upon the happening of a defined event. An example would be a guarantor of a loan becomes liable if the borrower defaults.

Corporate Pyramid Structure

In a corporate pyramid, one corporation controls a second corporation while the second corporation controls a third corporation and so on. For example, Corporation A owns 51% of the stock of Corporation B and thus controls it. Corporation B owns 51% of the stock of Corporation C and thus controls it. The person that owns 51% of the stock of Corporation A now controls all three corporations.

Corporation

A corporation is a legal entity created under the laws of each state having its own privileges and liabilities separate from those of its stockholders. Stockholders have limited liability, elect directors who elect the officers, and can receive dividends if the corporation is profitable.

Creative Destruction

This refers to new technologies and businesses that produce new industries and jobs that end up destroying or minimizing older industries that become obsolete. Examples include personal computers replacing typewriters, automobiles destroying the business of making harnesses (for horses), and on-line publications replacing traditional print newspapers. Creative Destruction is inherent in capitalism and freedom. It is not to be confused with the definition described by Karl Marx.

Credit Enhancements

These are techniques used by issuers of bonds or notes to improve the credit rating of the debt thus reducing the interest rate paid.

Cross Holdings

Exist when a corporation owns another corporation's stock. Double counting must be eliminated from Consolidated Financial Statements when Cross Holdings exist.

Crown Jewel Defense

A Poison Pill strategy in which a takeover target spins off or sells a valuable asset to discourage the takeover.

Current Assets

These are cash, accounts receivable, inventory and other assets that are likely to be converted into cash in the normal course of business within twelve months.

Current Liabilities

These are liabilities that are due within twelve months.

Current Ratio

This important ratio is determined by dividing the current assets by the current liabilities. The ratio indicates a firm's ability to pay its current obligations from current assets. A firm with a reliable cash flow can operate more safely with a low current ratio than a firm with an unreliable cash flow.

Daisy Chain

A series of stock trades among market manipulators to create the appearance of high trading volume. The purpose is to increase the price of the stock so the manipulators can sell at a profit. After the manipulators sell their stock, the price usually returns to the previously lower price.

Debt to Equity Ratios

There are three common debt to equity ratio calculations used to evaluate a firm's financial statement:

Total liabilities divided by total shareholders' equity. This ratio indicates to what extent shareholders' equity is available to cover creditors' claims if there is a liquidation.

Total long term debt and preferred stock divided by common stock equity. This measures securities with fixed charges to those without any fixed charges.

Total long term debt divided by shareholders' equity. This ratio indicates the extent of leverage. Leverage is the use of borrowed funds for the purpose of increasing the return on the equity of the common shareholders.

Direct Bank

See Virtual Bank.

Dividend Yield

The annual rate of return earned by an investor based on dividends only.

Division of Labor

The Division of Labor or Specialization of Labor refers to breaking down the production process into a sequence of stages where employees specialize and focus their efforts on a single stage. The division of labor increases productivity, increases profits, and results in higher wages and benefits. The division of labor encourages trade. See Comparative Advantage.

Domestic Corporation

A corporation doing business in the state in which it was incorporated.

Earnings Multiple

See Price/Earnings Ration (P/E Ratio).

Effective Control

Effective Control or Working Control by a stockholder owning less than a majority of the stock is possible, and even common, when the balance of the stock is widely dispersed. Sometimes stockholders with as little as 10% of the stock have Effective Control.

Fallen Angels

Bonds that were investment grade when issued that have declined below investment grade. Fallen Angels become the equivalent of junk bonds.

Finance Company

A firm that lends money to individuals and businesses. Unlike commercial banks, Finance Companies do not take in deposits. Their funds generally come from their own capital, bank lines of credit, insurance companies, and sometimes Commercial Paper. Finance Companies usually charge slightly higher rates than commercial banks, but generally offer loans that many banks will not make. Most well capitalized Finance Companies can borrow from their banks at the lowest rates available in the market.

Firm

This is a general term for a business. It could be a corporation, partnership or other entity.

Foreign Corporation or Out of State Corporation

A corporation incorporated under the laws of a state other than the one in which it is conducting business. Out of State Corporation is preferred since it is less likely to be confused with Alien Corporation.

Friendly Takeover

A merger or acquisition made with the support of the management and board of directors. It exists where the board recommends the proposed transaction to the shareholders because they believe it is in the best interest of the stockholders to accept it. Compare to Hostile Takeover.

Growth Stocks

See Performance Stocks.

Godfather Offer

This is a takeover offer that is so generous that the board of the target corporation can't refuse it for fear of encouraging a stockholder lawsuit.

Hidden Reserves or Hidden Values

These are undervalued assets owned by a corporation that are not reflected in its stock price. Examples can be trademarks, patents, licenses, and land. Sometimes these undervalued assets become recognized for their true value resulting in the stock price increasing.

Hostile Takeover

The takeover of a corporation against the desire of its board of directors and senior management.

Hyperinflation

This is inflation that is out of control, where people lose confidence in the value of currency and put their assets in hard assets like gold, certain stocks, and real estate, including land. Historically, people start to lose confidence in their currency when the government is printing large amounts of money, deficits are out of control, or inflation exceeds five percent per year. See Inflation Hedge. See Barter.

Hypothecation

Refers to the pledging of personal property to secure a loan. It does not transfer title. It transfers the right to sell the property in the event of a default on the loan payments. The sales proceeds are then applied toward repayment of the loan.

Indenture or Deed of Trust

An indenture is a written contract between the issuer of bonds and the bond holders setting forth all terms. It is sometimes called a Deed of Trust. The indenture will provide for the appointment of a trustee to act on behalf of the bondholders.

Inflation

The increase in the price of goods, services, and other assets. Inflation causes a loss of purchasing power where currency loses value. It occurs when the supply of money increases faster than the economy is growing. See Hyperinflation and Inflation Hedge.

Inflation Hedge

An investment designed to protect the investor from the loss of purchasing power caused by inflation. Inflation hedges are usually investments in gold, certain stocks, and real estate, including land.

Initial Public Offering (IPO)

A corporation's first or initial offering of stock to be sold to the public. IPOs are an opportunity for the stockholders of a corporation to make a large profit if the market believes the corporation will earn profits and grow.

Internal Auditor (IA)

An employee who usually reports to the board of directors of a corporation. The IA guards against any wrong - doing on the part of management and reports whether management is following the board's directives, including company policies and procedures.

Inventory Turnover Ratio

This is the ratio of annual sales to average inventory. Sometimes called the Inventory Utilization Ratio, it indicates how many times the inventory of the company is sold and replaced during an accounting period. It is useful to compare the Inventory Turnover Ratio of a company to industry averages. A low turnover may be an unhealthy indicator.

Inventory Utilization Ratio

Refer to Inventory Turnover Ratio.

Jonestown Defense

Defensive tactics taken by management to discourage a hostile takeover that are so severe they are perceived to be suicidal for the corporation.

Keep well Agreement

A Keep well Agreement is a contract between a parent company and a subsidiary to maintain solvency and financial backing for the term of the agreement. It is a means of increasing the credit worthiness of Subsidiaries.

Lessee

A tenant or company leasing equipment owned by the Lessor.

Lessor

A landlord or company leasing its equipment.

Leverage

Leverage is a technique that can multiply gains and losses. The most common leverage method involves borrowing funds in order to reduce the need for equity capital when making an investment. Leverage always involves increasing risk.

Leveraged Buyout (LBO)

A LBO of a corporation exists when the buyer uses borrowed funds that are secured by the assets of the company being acquired. The buyer may be required to use other funds to supplement the LBO funds.

Liquid Assets

Cash or assets readily converted into cash. Examples would be U.S. Treasury Bills and investment quality corporate bonds or other marketable securities.

Liquidity

This is the ability to quickly sell an asset without an affect on the price of the asset. Treasury securities would be highly liquid. Raw land would not be a liquid asset. Highly liquid assets tend to have a lower rate of return, but are safer because they can easily be converted to cash.

Mark to Market Accounting

Mark to Market Accounting or Fair Value Accounting refers to accounting for the fair market value of assets rather than the historical cost. This can change the values on the balance sheet of a firm as market conditions change. Historical cost accounting does not reflect the current market value of assets. Balance sheets primarily made up of marketable securities can change dramatically when economic conditions are unstable.

Multi - level Marketing (MLM)

Multi - level marketing is a marketing strategy whereby salespeople are compensated for both their sales and the sales of others they have recruited for the firm. MLM creates a downline of salespeople and a hierarchy of levels of compensation. MLM is sometimes referred to as network marketing, referral marketing, and pyramid selling. MLM strategies vary considerably. Most are legitimate business strategies. A few border on Pyramid Schemes. Examples of firms that utilize MLM are Amway, Avon Products, Herbalife, Mary Kay, Pre - Paid Legal Services, Primerica, and Shaklee Corporation.

Negative Working Capital

A situation where current liabilities exceed the current assets of a company. If the situation is not corrected, the company will find itself in a position where it cannot pay its obligations when due. This could result in insolvency and / or bankruptcy.

Net Current Assets or Working Capital

This is the difference between current assets and current liabilities.

Net Operating Income (NOI)

The amount of cash generated by a business after deducting operating expenses. NOI is calculated without considering loan payments.

Net Operating Profit (Or Loss)

See Operating Profit (Or Loss).

Net Profit

Also referred to as Net Cash Flow, the amount of cash generated by a business after deducting operating expenses and loan payments.

Net Quick Assets

These liquid assets are cash, marketable securities, and accounts receivable, less current liabilities. See Quick Ratio.

Net Worth

The amount determined by deducting total liabilities from total assets.

Non Current Asset

This is an asset that is not expected to be converted into cash, sold, or exchanged within one year. Examples are (1) Intangible Assets such as goodwill, trademarks, and patents, and (2) Fixed Assets such as machinery, equipment, and real estate.

Nonrecourse Loan

A loan where the repayment obligation is tied directly and exclusively to the security for the loan. A loan where no personal guaranty is provided.

Operating Profit (Or Loss)

This is the difference between the revenues of the firm and the related costs and expenses. Income from sources other than regular operations are excluded. Income taxes are excluded and cost unrelated to the operations of the business are also excluded. Operating Profit is also referred to as Net Operating Profit and Net Operating Income.

Operating Ratios

Operating Ratios measure a firm's operating efficiency and effectiveness by relating certain income and expense numbers from the income and expense statement to each other and to certain balance sheet numbers. Operating Ratios include: sales to cost of goods sold, operating expenses to income, and net profits to gross income. The ratios are particularly meaningful when comparisons are made to prior periods and with industry averages.

Option

The right to purchase property, for a defined price, that is granted for consideration called the option price or option fee. If the option is not exercised by a certain date, it expires.

OTC Bulletin Board (OTCBB)

The OTCBB is the electronic listing of Bid and Asked quotations of Over the Counter (OTC) Stocks that do not meet the minimum net worth and other requirements of the NASDAQ stock listing system. It provides continuously updated data on domestic stocks that are not listed and traded on an organized exchange.

Outside Director

A director of a corporation who is not employed by the corporation. Outside Directors receive a fee for their service. They bring value to the board and corporation as a result of their knowledge, experience and sometimes relationships with third parties. Outside Directors are also usually unbiased.

Over the Counter Stocks (OTC)

These are stocks and other securities of corporations that do not meet the listing requirements of an organized exchange, or securities of corporations that have chosen Over the Counter trading. The rules of OTC securities trading are written and enforced by the National Association of Securities Dealers (NASD), a self-regulatory group. Prices of OTC securities are published in many daily newspapers.

Pac - Man Strategy

This is a defensive strategy used to defeat a hostile takeover bid where the target corporation begins buying the shares of the acquirer corporation or threatens to do so.

Parent Corporation

An operating corporation that owns or controls one or more subsidiary corporations through the ownership of voting stock. If the corporation is not an operating company, it is referred to as a Holding Company.

Participation Certificate

This is an interest in a single loan or a pool of loans evidenced by a written agreement or certificate.

Payment in Kind Securities

These are securities that pay their holders with more of the same type of security instead of cash. For example, bond holders will receive more bonds instead of cash payments.

Penny Stock

Penny Stocks are common shares of public companies that trade for under one dollar. They are generally thinly traded and are often targets for price manipulation.

Performance Stocks

A performance stock is also called a Growth Stock. These are stocks of fast growing companies that usually pay no dividends. All profits are reinvested in the company in order to help finance its growth. These companies generally take higher than average risks.

PIK Securities

See Payment in Kind Securities.

Pink Sheets

Pink Sheets LLC, formerly the National Quotation Bureau, provides daily bid and offer quotes, electronically, from Market Makers on unlisted, OTC Stocks (pink sheets) and bonds (yellow sheets) to subscribers of the service. It is not a stock exchange.

Poison Pill

Refers to various strategies of takeover targets to avoid a Hostile Takeover. One such strategy is a Stockholder Rights Plan. Another is the Crown Jewel Defense.

Poop and Scoop

This refers to an illegal act whereby unfavorable information about a stock is circulated on the internet and through other means in order to depress the price so it can be purchased at a low price and later resold at a profit. The opposite is called Pump and Dump.

Price Earning Ratio (P/E Ratio)

This is the price of a stock divided by its earnings per share. The P/E Ratio is also known as the multiple or Earnings Multiple. It is a measure of price paid for a share relative to the annual net income or profit earned by the corporation per share.

Preemptive Right

This is a right usually set forth in a shareholders Agreement or Articles of Incorporation giving existing owners of corporate stock the right or opportunity to purchase shares of new issues before it is offered to others. The purpose is to protect shareholders from dilution of value and control.

Prime Rate

This is the rate that commercial banks charge their most credit worthy borrowers. It is also a base rate, from which other interest rates are calculated. For example, one borrower may be charged prime plus 1%, another prime plus 2%, etc. Every bank has its own prime rate, although the prime rate at most major banks, is the same or very close to the same. Smaller banks may have a prime rate that is higher than major bank prime.

Principal Shareholder

Under SEC Rules, a Principal Shareholder owns 10% or more of the voting stock of a Registered Company.

Private Equity Fund

Generally, a limited partnership controlled by a private equity firm that acts as the general partner. The Private Equity Fund (General Partner) usually solicits investment funds from Accredited Investors and Qualified Institutional Investors for investment into various ventures.

Private Limited Partnership (PLP)

This is a limited partnership that is not registered with the SEC.

Private Placement

Sale of securities directly to an institutional investor such as an insurance company. A private placement does not have to be registered with the SEC if the securities are purchased for investment and not for resale to the public.

Pro Forma

Projected financial results for a business.

Pro Forma Budget

A projected or hypothetical budget used for planning purposes.

Proprietorship or Sole Proprietorship

This is an unincorporated business owned by one person. The individual proprietor is entitled to all profits and is responsible for all expenses and liabilities. A Proprietorship offers the owner no asset protection.

Prospectus

The formal written offer to sell securities that sets forth the business plan of the enterprise and all relevant information the investor will need to make an informed decision to pay or not buy the securities.

Proxy

A written power of attorney by a stockholder authorizing another person to vote on his or her behalf.

Public

Individual investors as opposed to institutional investors such as insurance companies and mutual funds.

Public Offering Price or Offering Price

This is the price at which a new issue of securities is offered to the public by underwriters.

Publicly Held Corporation

A corporation with stock owned by members of the public.

Publicly Traded Stock

Publicly Traded Stock is stock purchased and sold by members of the public sometimes utilizing the services of a stock exchange.

Public Offering

The offering of stock to the public after meeting all registration and disclosure requirements.

Pump and Dump

Refer to Poop and Scoop

Pyramid Scheme

An illegal, non - sustainable business strategy that involves paying participants primarily for recruiting other people rather than providing valuable goods and services to the public. The scheme involves having each participant pay a fee or purchase inventory to get started. The fee and / or sale of the inventory to each participant is the real source of profit. Examples include Charles Ponzi and Bernie Madoff.

Quick Assets

These are cash, marketable securities, and accounts receivable.

Quick Ratio

Cash, marketable securities, and accounts receivable divided by current liabilities. This ratio excludes inventory, thus concentrating on the companies most liquid assets. It provides an answer to the question: If sales declined materially or stopped, could the company still meet its obligation? A Quick Ratio of 1:1 is considered acceptable. This is also referred to as the Acid Test Ratio.

Raider

A corporate investor who intends to take over a corporation by acquiring a controlling interest in its voting stock and then changing its senior management. Raiders who acquire 5% or more of the voting stock of a target corporation must report the acquisition to the SEC, the listing exchange, and the target corporation.

Ratio Analysis

This is a method of financial analysis used to make credit, investment, and financial decisions. It uses the relationships of numbers found in financial statements. Ratio Analysis will help the analyst determine the strengths and weaknesses of a company, as well as important trends.

Renewal Terms

Franchise agreements have a termination date that will range from five to more than ten years. Most, but not all, can be renewed subject to renewal terms set forth in the Franchise Agreement. Renewal Terms vary among franchises.

Retained Earnings

Retained earnings are undistributed profits accumulated in a corporation after dividends are distributed. They are also called Earned Surplus. Retained Earnings are not the same as cash received in exchange for stock.

Rhinophobia

This is an "investors disease": the fear of having uninvested cash. Some investors believe they can only maximize their portfolio return if they are fully invested at all times.

Say on Pay

Given that corporate directors and officers overpay themselves, the bylaws of some corporations require that compensation for directors and officers be approved by the shareholders of the corporation. Proponents point out that directors and officers owe a fiduciary duty to the corporation and that Say on Pay promotes a stronger relationship between the directors and officers on the one hand, and the shareholders on the other. Corporations listed on an exchange are subject to strict disclosure rules and restrictions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Self - Directed IRA Account

An IRA that can be actively managed by the account owner who designates a custodian to carry out his or her investment instructions. Many account owners use their IRA accounts to invest in trust deeds and real estate limited partnership interests.

Second Preferred Stock

This is Preferred Stock issued that is ranked below another class of Preferred Stock. For example, Second Preferred Stock might pay dividends only if the Preferred Stockholders receive a dividend payment of a defined amount.

Shelf Corporation

A Shelf Corporation is a corporation created and placed on the "shelf" to "age" and then be sold. Common reasons for buying a shelf corporation include:

To save the time necessary to form a new corporation;
To create the appearance that the new business has an operating history; and
To use the appearance of an operating history to obtain corporate credit and investment capital

Sleeping Beauty

This is a takeover target that has not yet been contacted by an acquirer. Sleeping Beauty corporations usually own undervalued assets and large amounts of cash or marketable securities.

Small Issues Exemption

Refers to issues of securities under $1.5 million that qualify for simplified registration under SEC Regulation A.

Spin-Off

A corporation divestiture where a subsidiary or division becomes a separate and independent company. Sometimes the stock of the new corporation is distributed to the shareholders of the former Parent Corporation pro-rata. Other times, the new corporation is sold and the cash used by the former Parent Corporation.

Stockholder Rights Plan

This is one of many Poison Pill defenses against a Hostile Takeover. The target corporation issues rights to existing stockholders (excluding the takeover bidder) to acquire additional voting stock if anyone acquires more than a set amount of the voting stock. This dilutes the percentage of voting stock acquired by the bidder and makes it more costly to acquire control of the target corporation.

Stock Option

The right to purchase or sell stock at a specified price within a stated period of time. Stock Options may be very valuable or worth nothing depending upon the terms of the option agreement and whether the price of the stock is increasing or decreasing.

Stock Purchase Plan

A plan whereby employees of a corporation can purchase stock of the corporation. Sometimes the corporation will contribute to the purchase price as part of its compensation plan.

Stock Repurchase or Buyback

A Stock Repurchase takes place when a corporation pays cash for the stock owned by one or more stockholders. The effect is to reduce the shares outstanding while paying cash (not a taxable dividend) to the stockholder(s). The corporation either retires the stock or keeps it as Treasury Stock.

Subsidiary

This is a corporation where more than 50% of the voting shares of its stock is owned by another corporation called the Parent Corporation.

Swap

The exchange of one security of a corporation for another security of the same corporation. For example, bonds may be swapped for preferred stock.

Takeover

This is a change in the voting or controlling interest of a corporation.

Treasurer

This person is a corporate officer responsible for the receipt, custody, investment, and disbursement of funds. In addition, the Treasurer has responsibility for the borrowing of funds and recording changes in stock ownership. In some firms, the Treasurer is also the Controller or chief accountant.

Treasury Stock

This is stock purchased by the corporation from stockholders, thus reducing the amount of outstanding stock. The stock is purchased for cash and held for possible issuance or sale in the future. The cash received by the seller is not taxed as dividend income. Treasury Stock has no voting rights and receives no dividends.

Vertical Merger

A merger between a corporation that supplies goods and / or services, and a corporation that uses those goods and / or services.

Virtual Bank

A Virtual Bank or Direct Bank is a bank without a network of branches. It offers its banking services by using the internet, telephones, email, mail, and automatic teller machines. Virtual Banks have substantially lowered operating costs which allows them to charge lower fees and interest on loans while paying account holders higher interest rates.

War Chest

Liquid assets set aside by a corporation to be used to takeover another corporation or defend against a possible takeover.

Wasting Asset

These are assets that irreversibly decline in value over time. These types of assets include vehicles, machines, computers, office furniture, and other fixed assets. Depreciation schedules are assigned to Wasting Assets, thus the loss in value is recognized each year.

Watered Stock

Watered Stock is stock that is issued at a price that is much greater than the value of the underlying assets of the corporation. The assets can be overvalued for many reasons including accounting manipulations and fraud.

Working Control

See Effective Control

Zero Coupon Bond or Note

A bond or note that makes no periodic interest payments but is sold at a discount in order to yield a return.

Zombie

A company that continues to operate even though it is insolvent and heading towards bankruptcy.