BA 100 Chapter 17: Managing Business Finances

Angel Investors

Outside investors who provide new capital for firms in return for a share of equity ownership

Annual Percentage Rate (APR)

One-year rate that is charged for borrowing, expressed as a percentage of the borrowed principal

Asset Allocation

Relative amount of funds invested in (or allocated to) each of several investment alternatives

Bankruptcy

Court-granted permission for a company to not pay some or all debts

Bear Market

Period of falling stock prices marked by negative investor sentiments with motivation to sell ahead of anticipated losses

Blue-Chip stock

Common stock issues by a well-established and respected company with a sound financial history and a stable pattern of dividend payouts

Bond Indenture

Legal document containing complete details of a bond issue

Bondholders' claim

Request for court enforcement of a bond's terms of payment

Book value

Value of a common stock expressed as the firm's owners' equity divided by the number of common shares

Book-entry ownership

Procedure that holds investors' shares in book-entry form, rather than issuing a physical paper certificate of ownership

Bull Market

Period of rising stock prices, lasting 12 months or longer, featuring investor confidence for future gains and motivation to buy

Capital Gain

Profit realized from the increased value of an investment

Collateral

Asset pledged for the fulfillment of repaying a loan

Common Stock

Most basic form of ownership, including voting rights on major issues, in a company

Compound Growth

Compounding of interest over time--with each additional time period, interest returns accumulate and earn more interest

Corporate Bond

Formal pledge obligating the issuer (the company) to pay interest periodically and repay the principal at maturity

Corporate Raider

Investor conducting a type of hostile corporate takeover against the wishes of the company

Current Dividend Yield and Current Interest Yield

Yearly dollar amount of income divided by the investment's current market value, expressed as a percentage (this is the rate of return from dividends paid to shareholders)

Debt Financing

Long-term borrowing from sources outside a company

Default

Failure of a borrower to make payment when due to a lender

Diversification

Purchase of several different kinds of investments rather than just one

Dividend

Payment to shareholders, on a per-share basis, out of the company's earnings

Dow Jones Industrial Average (DJIA)

Oldest and most widely cited market index based on the prices of 30 blue-chip, large-cap industrial firms on the NYSE

Electronic Communication Network (ECN)

Electronic trading system that brings buyers and sellers together outside traditional stock exchanges

Equity Financing

Using the owners' funds from inside the company as the source for long-term funding

Exchange-Traded Fund (ETF)

Bundle of stocks or bonds that are in an index that tracks the overall movement of a market, but unlike a mutual fund can be traded like a stock

Face Value (Par Value)

Amount of money that the bond buyer (lender) lent the issuer and that the lender will receive on repayment

Initial Public Offering (IPO)

First sale of a company's stocks to the general public

Insider Trading

Illegal practice of using special knowledge about a firm for profit and gain

Interest

Fee paid to a lender for the use of borrowed funds; like a rental fee

Investment Bank

Financial institution that specializes in issuing and reselling new securities

Load Fund

Mutual fund in which investors are charged sales commissions when they buy in or sell out

Loan Principal

Amount of money that is loaned and must be repaid

Market Capitalization (Market Cap)

Total dollar value of all the company's outstanding shares

Market Index

Statistical indicator designed to measure the performance of a large group of stocks or track the price changes of a stock market

Market Value

Current price of a share of stock in the market

Maturity Date (Due Date)

Future date when repayment of a bond is due from the bond issuer (borrower)

Mortgage-backed Security (MBS)

Mortgages pooled together to form a debt obligation--a bond-- that entitles the holder (investor) to cash that flows in from the bundled mortgages

Mutual Fund

Company that pools cash investments from individuals and organizations to purchase a portfolio of stocks, bonds, and other securities

NASDAQ Composite Index

Market index that includes all NASDAQ-listed companies, both domestic and foreign, with a high proportion of technology companies and small-cap stocks

National Association of Securities Dealers Automated Quotation (NASDAQ) System

World's oldest electronic stock market consisting of dealers who buy and sell securities over a network of electronic communications

No-load Fund

Mutual fund in which investors pay no commissions when they buy in or sell out

Portfolio

Combined holdings of all the financial investments of any company or individual

Price Appreciation

Increase in the dollar value of an investment at two points in time (the amount by which the price of a security increases)

Primary Securities Market

Market in which new stocks and bonds are bought and sold by firms and governments

Prospectus

Registration statement filed with the SEC containing information for prospective investors about a security to be offered and the issuing company

Risk-Return (Risk-Reward) Relationship

Principle that safer investments tend to offer lower returns, whereas riskier investments tend to offer higher returns (rewards)

Russell 2000 Index

Speciality index that uses 2,000 stocks to measure the performance of the smallest U.S. companies

S&P 500

Market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market

Secondary Securities Market

Market in which existing (not new) stocks and bonds are sold to the public

Secured Loan (Asset-Backed Loan)

Loan to finance an asset, backed by the borrower pledging the asset as collateral to the lender

Securities

Stocks, bonds, and mutual funds representing secured, or asset-based, claims by investors against issuers

Securities and Exchange Commission (SEC)

Government agency that regulates U.S. securities markets

Securities Markets

Markets in which stocks and bonds are sold

Stock

Portion of ownership of a corporation

Stock Broker

Individual or organization that receives and executes buy and sell orders on behalf of outside customers in return for commissions

Stock Exchange

An organization of individuals to provide an institutional auction setting in which stocks can be bought and sold

Stock Split

Stock dividend paid in additional shares to shareholders, thus increasing the number of outstanding shares

Time Value of Money

Principle that invested money grows, over time, by earning interest or some other form of return

Unsecured Loan

Loan for which collateral is not required

Venture Capital

Private funds from wealthy individuals seeking investment opportunities in new growth companies