Abandonment Risk arises in Project financing. It is the Risk that the project will be abandoned, and arises when the interests of the industrial manager and the bankers diverge. The Project financing contract must lay down clear rules on how decisions affecting the Future of the project are to be taken.
Designates when the ownership of an asset is unknown. Such property is "in abeyance".
Accelerated Book-building is Book-building completed in few hours. Accelerated Book-building is often used for Block trades.
In account balancing process, cash surpluses are pooled on a daily basis into a concentration account (see Concentration bank) through interbank transfers and are used to finance accounts in Debit.
"Account Receivables aging" (also called "account Receivables balance") is a report generated at regular intervals by a company and describing the breakdown of the account Receivables by debtor and due date. This is particularly used in the context of a securitization to detect any adverse evolution in the performance of the securitised portfolio.
"Accountant letter" (also called "accountant's opinion") is a document produced and signed by the company's accountant (usually every 3 months, 6 months and/or yearly) which certifies that the financial statements he has audited comply with all the applicable accounting standards.
These criteria, which appeared first in Financial communication, include Earnings per Share, Net income, ROE, CFROI, and ROCE. They in fact measure accounting Profitability and not Value creation. The problem of these indicators is that they can be easily manipulated, precisely because of their accounting nature. Accounting nature means not taking into account the Risk of the company and/or its Cost of equity. Only ROCE avoids this bias. This is the reason why ROCE has recently become the main measure of economic performance.
Accounting Currency risk arises from the Consolidation of foreign subsidiaries, including Equity, Dividend flows or financial investments denominated in foreign currencies, and exchange rate discrepancies.
Accounts payable are calculated as accounts payable and related accounts less advances and deposits paid on orders.
Receivables are calculated as follows: Customer Receivables and related accounts + Outstanding bills discounted (see Discounting of bills of exchange) - Advances and deposits on orders being processed.
"B2B" or "business-to-business" designates a company or a transaction which only relates to business entities, as opposed to individual consumers. B2B activities include maintenance of machine-tools or Provision of professional accounting services, whereas retail is business-to-consumers.
Supplier's Credit Ghana is B2B Platform.
A "back-office" refers to a part of a financial institution or corporation which is responsible for all logistical tasks required to running the corporation itself. Typically, back-office includes IT, accounting, and human resources departments. In financial services companies, IT and Risk management are typically considered as Middle-office.
"Bad Debt" designates a financial asset (such as a loan) which is unlikely to be repaid due to the borrower's low Creditworthiness, and which generally has already fallen into arrears. Also called "Impaired debt" and "Non-performing debt".
"Compound Annual Growth Rate" ("CAGR") measures the annual growth percentage of a financial indicator (such as Share price, turnover, EBITDA or Net profit) over a period of several years.
Capital expenditures are Acquisitions of tangible Fixed assets and intangible Fixed assets. They are commonly called Capex.
Debt service ratio is the ratio of EBIT to net Interest expense. A ratio of 3:1 is considered the critical level if the company is to meet its Debt repayment obligations.
Economy of scale is the gain on unit Cost due to higher overall physical volume produced.
The "Fair Market value" (FMV) is an estimate in a free market situation of what a willing buyer would pay to a willing seller, for a given asset.
The AIM of general accounting is to record and to translate into figures, all of the operations that an entity, usually a company, has carried out during the course of a financial year â investments, financing, Sales, acquisition of Raw materials, payment of wages, rent, etc. To achieve this, is relies on accounting standards and principles which are drawn up by national (the FASB in the USA) or international (IFRS) bodies.
General accounting is used to produce financial statements (Income statement, Balance sheet, Cash flow statement and appendices), that are made available to the stakeholders in the company (Shareholders, lenders, employees, tax authorities), and the general public for listed companies. These statements are used to measure the company's performance and as a basis for Financial analysis.
When modelling cash flows, an "haircut" is the percentage which is conservatively deducted (haircut) from the historical trendline.
Hard currency is a currency that is stronger than the currency of the Parent company's home country. See also Soft currency.
"Hazard Insurance" is an Insurance policy insuring a real estate property against risks such as fire and tempest, or sometimes flood and earthquake.
When an investor attempts to protect himself from risks he does not wish to assume he is said to be hedging. The term "to hedge" describes a general concept that underlies certain Investment decisions, for example, the decision to match a long-term Investment with long-term financing, to finance a risky industrial Investment with Equity capital rather than borrowed capital, etc.
Hidden Assets are Assets that are not valued or incorrectly valued by the Market, because of under-utlisation by their owners or because of poor communication or lack of information.
"Hire purchase" designates a form of sale where the buyer pays the seller in several instalments, and where the legal title to the goods sold is not transferred before the last payment due is made.
Industry Risk refers to the impact that the state's industrial policy can have on the performance of a specific industry.
Inflation Risk is the Risk that the investor will recover his Investment with a depreciated currency, i.e. that he will receive a Return below the Inflation rate.
The "initial Margin" is the amount of cash (or alternative, such as a Bank guarantee) requested by a Broker before letting a company enter into a fg. Generally the Position is thereafter mark-to-Market and Margin calls (additional amounts of cash to be deposited) are asked whenever necessary.
"Insolvent" designates the situation of a company or individual whose Creditworthiness Position is so weak that he can't meet its contractual financial obligations (such as paying Interest and Principal).
An intangible fixed asset is a non-physical fixed asset. Intangible Fixed assets include Goodwill, patents, brands, Market shares, etc. Can also be called intangible Assets.
Inventories represent the temporary Assets created as part of the Business cycle. Businesses may Transfer to inventories Purchases made in the current period for consumption in Future operating cycles. Inventories are shown on the Balance sheet. There are inventories of Raw materials, goods for resale, products and work in progress, finished products.
Inventory valuation methods include Weighted average cost, LIFO, FIFO, and Identified purchase cost.
A joint venture is the company controlled jointly by a limited number of partners. The key factors determining joint control are: i) a limited number of partners sharing control (without any partner able to claim exclusive control), and ii) a contractual arrangement outlining and defining how this joint control is to be exercised.
"Just-in-time" is a form of business model aimed at improving the Return on investment of a company by reducing inventory and associated carrying costs.
Key performance indicators help measure the Value drivers of the company. Can be either operating or strategic measures, for example in:pharmaceutical companies: R&D pipeline; -packaged food division: Market share; -retailers: number of stores opened in a given year or number of new product categories introduced.
An Insurance policy covering the consequences on a company (such as a start up) of the death or illness of a key executive (such as the founder).
Refers to the set of procedures and guidelines implemented within a bank or a Broker in order to check a potential client's background and determine the origin of its funds. This is part of the anti-money laundering processes.
Leasing, one of the financing techniques, allows a company to use some of its operating Fixed assets (i.e. buildings, plant and other Fixed assets) under a rental system. In certain cases, the company may purchase the asset at the end of the contract for a pre-determined and usually very low amount. A leasing transaction is called a Lease. There are finance Leases and operating Leases.
Liabilities are the borrowings of any kind that the business may have arranged, e.g. bank loans, supplier credits, etc.
Margins represent the ratio of Earnings to business volumes (i.e. Sales or Production).
Mass production, one of the Production models, is suitable for products with a low unit Cost, but gives rise to very high Working capital owing to the Inventories of semi-Finished goods that provide its flexibility.
A "non-Performing asset" is an asset which does not behave as well as initially expected. For instance a "non-Performing loan" sees the borrower not paying on time and/or in full any Interest and/or Principal due as per the Amortisation schedule. A project which is "non-Performing" (or "poorly Performing", or "Under-performing") is a project which is not being constructed on time and on budget, and/or starts generating cash flows which are lower than anticipated. The opposite of "non-Performing" is "Performing". The opposite of "Under-performing" is "Over-performing".
Off-Balance sheet financing consists in removing Assets and/or Liabilities from the Balance sheet in order to reduce the apparent Debt burden or Base financing on specific Assets, thereby reducing, theoretically, the overall Cost of debt.
In some cases, the business relationship between Party A and Party B are such that they each are both debtor and creditor vis-à-vis the other party. In that case, if Party B fails to pay the amount due to Party A, then Party A can decide to "Setoff" (also called "offset" or compensate), and reduce the amount it owes to Party B, so as to be synthetically reimbursed of all or part of the amount owed.
Oligopoly designates a Market or industry which is dominated by a small number of sellers (oligopolists). Since the number of participants is small, each oligopolist is aware of the actions of the others. As a consequence, decisions of one firm influence, and are influenced by the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other Market participants.
Operating cash flow is the balance of Operating outflows and Operating inflows generated by the Business cycle of the business. Operating cash flow reflects the cash flows generated by operations during a given period. It represents the cash flow generated by the company's day-to-day operations. Operating cash flow differs from EBITDA by the amount of change in the Working capital. It is also equal to cash flow less the change in the Operating working capital. Operating cash flow is a concept that depends on how expenditure is classified between operating outlays and Investment outlays. Since this distinction is not always clear-cut, operating cash flow is not widely used in practice, with Free cash flow being far more popular. Also called Cash flow from operating activities or Cash flow from operations.
The payback period is the time necessary to recover the initial outlay on an Investment. Where annual Cash flows are identical, the payback period is equal to: Investment/annual Cash flow. Payback period criterion emphasises the liquidity of an Investment, but not its Value. See also Discounted payback period. Payback period is also called Payback ratio.
Designates the number of days given by a trade creditor to a Debtor for it to discharge its Debt. The average payment term on a Trade receivables portfolio is contractually the average (weighted by the invoices' unitary values) number of days given by the company to its clients.
Amounts or profits which are "ploughed back" in a company or project are re-invested in it, whereas they could be distributed to Shareholders.
Depending on the country and on the legal form of the company a qualified majority is generally two thirds or three quarters of outstanding voting rights. See also extraordinary general meeting of Shareholders. A qualified majority is required for very important corporate decisions (amendment of articles of association).
The quick ratio is one of the Liquidity ratios. It is the same as the Current ratio, except that Inventories are excluded from the calculation. This exclusion recognises that a portion of Inventories corresponds to the minimum the company requires for its ongoing activity. Some inventory items have Value only to the extent they are used in the Production process. This ratio is calculated by dividing Current assets (less than one year) excluding Inventories by Current liabilities (due in less than one year). Also called Acid test ratio.
Raw materials, one of the three classes of inventory (along with work-in progress and Finished goods), are physical substances used as inputs for Production or manufacturing.
Recapitalisation is the injection of cash into the Equity of a company. In the palmy days of BOs is was synonymous with paying down pact of the Equity with a special Dividend finance thanks to new Debt.
Replacement Cost is the price that will have to be paid to replace an existing asset with a similar asset.
Seed capital is capital used for financing projects during their start up phase, before Production commences (research, Market studies, etc.). It is provided by specialised funds, Business angels, etc.
A supplier credit is an agreement in a commercial contract under which an exporter/supplier will supply goods or services to a foreign or local buyer on credit terms.
Supply chain comprises all the companies involved in the manufacturing process, from the Raw materials to the end product.
Take and pay contracts, which are less restrictive than take or pay contracts, consist in clients' agreeing to take delivery of the products or to use the installations if they have been delivered and are in perfect operating condition.
Take or pay contracts link the owner of the Production facilities (typically for the extraction and/or transformation of energy products) and the Future users whose need for the product is more or less urgent. The users agree to pay a certain amount that will cover both Interest and Principal payments, irrespective of whether the product is delivered and of any cases of force majeure.
Performance of a tracking Stock is indexed to the financial results of a Subsidiary or division. Technically a Share of the Parent company, a tracking Stock confers no voting right on the decisions of the Subsidiary that it represents. If the business is sold, however, the holder of the tracking Stock has the right to receive a portion of the capital gain. Tracking Stocks enable a company to retain full control of a Subsidiary while allowing the Market to establish a Value for it and providing a ready currency for Acquisitions.
"Unlisted" is the characteristic of a Share or any other financial instrument which is not listed (registered) on any Stock Exchange.
The value added by the company to goods and services purchased from third parties through its activities. On the By-nature income statement format, value added is equivalent to the sum of Gross trading profit and Profit on Raw materials used, less other goods and services purchased from third parties by-nature. For the by-function Income statement format, value added is equivalent to the sum of EBIT, Depreciation, Amortisation and Impairment losses on Fixed assets, personnel Expenses, and taxes other than corporate income tax. Value added is useful in understanding the sector and constitutes a measure of the integration of company in the sector.
A company will be able to create Value during a given period if the Return on Capital employed (after tax) that it generates exceeds the Cost of capital (i.e. Equity and Net debt) that it has raised to finance Capital employed. It leads to Enterprise value being higher than the Book value of the Capital employed.
A "withholding tax" refers to a tax imposed at source where payment is made for instance when distributing dividends, or paying interests. It is particularly necessary to take this Factor into account when structuring cross-border transactions involving several countries.
The net balance of operating uses and sources of funds is called the working capital. If uses of funds exceed sources of funds, the balance is positive and Working capital needs to be financed. This is the most frequent case. If negative, it represents a source of funds generated by the Business cycle. It is described as "working capital" because the figure reflects the cash required to cover financing shortfalls arising from day-to-day operations. Working capital is totally independent of the methods used to Value Fixed assets, Depreciation, Amortisation and Impairment losses on Fixed assets. However, it is influenced by: Inventory valuation methods; Deferred income and expense (over one or more years); the company's provisioning policy for Current assets and Operating liabilities and Expenses. Working capital can be also called Working capital needs, Working capital requirements, and requirements for working capital.
XBRL (EXtensible Business Reporting Language) is a language based on the XML standard used for communicating financial information for the purposes of analysis, restatement and comparison. It is most frequently used for regulatory reporting documents produced by firms and banks.
By charting the Interest rate for the same categories of Risk at all maturities, the investor obtains the yield curve that reflects anticipations of all financial Market operators.
The zero balance account concept requires subsidiaries to balance their Position (i.e. the balance of their bank accounts) each day by using concentration accounts (see Concentration bank) managed at group or sub-group level.