Glossary of Franchise Terms

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.

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.

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.

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

Start Up Costs
See Capital Required.

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.

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.

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.

White Elephant Investment
An investment that is so expensive to operate and maintain that it is highly unlikely to ever be profitable. Something whose cost of upkeep is out of line with its usefulness.

Working Capital or Net Current Assets
This is the difference between current assets and current liabilities.


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