Abatement Cost
A cost borne by many businesses for removal and/or reduction of an undesirable item that they have created.
Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production.
Example: Pollution reduction costs of paper mills and noise reduction costs of manufacturing plants..
Accelerated Share Repurchase – ASR
Accelerated share repurchase (ASR) refers to a method that publicly traded companies may use to buy back shares of its stock from the market.
The accelerated share repurchase is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company. The shares are returned to the client through purchases in the open market, often purchased over a period that can range from one day to several months.
Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is therefore able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock.
ASRs are often used to buy shares back at a faster pace and reduce the amount of shares outstanding right away.
The ASR method involves the company buying its shares from an investment bank (who in turn borrowed them from their clients), and paying cash to the investment bank while entering into a forward contract. The investment bank will then seek to purchase shares of the company from the market to return to its clients. At the end of the transaction, the company may receive even more shares than it initially received, which are then retired.
Ex:
Flowserve Corporation (NYSE: FLS) $300 Million Accelerated Share Repurchase agreement with J.P. Morgan.
CA Technologies (NASDAQ:CA) $500 million accelerated share repurchase agreement with Bank of America, N.A.
Accrual Bond
A bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the principal and paid at maturity.
An accrual bond is a fixed-interest bond that is issued at its face value and repaid at the end of the maturity period together with the accrued interest. In contrast to zero-coupon bonds, accrual bonds have a clearly stated coupon rate (a coupon payment on a bond is a periodic interest payment that the bondholder receives during the time between when the bond is issued and when it matures).
Anti-dumping Duty
It is an additional duty which is imposed on imported goods when these goods are sold to the importing country at a lower price than what it is charged in the home market.
In other words, it is a penalty imposed on suspiciously low-priced imports, to increase their price in the importing country and so protect local industry from unfair competition.
Anti-dumping duties are assessed generally in an amount equal to the difference between the importing country's FOB price of the goods and (at the time of their importation) the market value of similar goods in the exporting country or other countries.
Back To Back Letter Of Credit (L/C)
Arrangement in which one irrevocable letter of credit serves as the collateral for another.
The advising bank of the first letter of credit becomes the issuing bank of the second letter of credit.
In other words, Two letters of credit (LCs) used together to help a seller finance the purchase of equipment or services from a subcontractor. With the original LC from the buyer's bank in place, the seller goes to his own bank and has a second LC issued, with the subcontractor as beneficiary. The subcontractor is thus ensured of payment upon fulfilling the terms of the contract.
In contrast to a transferable letter of credit, permission of the ultimate buyer (the applicant or account party of the first letter of credit) or that of the issuing bank, is not required in a back-to-back letter of credit.
It is used mainly by intermediaries to hide the identity of the actual supplier or manufacturer.
Also called counter credit or reciprocal letter of credit.
Cascade Tax
A tax that is levied on a good at each stage of the production process up to the point of being sold to the final consumer.
A cascade tax is a type of turnover tax with each successive transfer being taxed inclusive of any previous cascade taxes being levied. Because each successive turnovers includes the taxes of all previous turnovers, the end tax amount will be greater than the cascade tax rate.
Cascade tax can create higher tax revenues compared to a single stage tax, because tax is imposed on top of tax.
It is replaced in Europe and many other locations by a value added tax.
For example, a government levies a 2% cascade tax on all goods produced and distributed. A company sells $1,000 worth of stone for a tax-inclusive price of $1,020 ($1000 + 2% cascade tax) to an artist. The artist makes a sculpture out of the stone and wants to make $2,000 when he sells it to an art dealer, so he adds this figure to what he paid for the stone to get $3,020, and then adds on the cascade tax to bring the total to get $3,080 ($3020 + 2%). The art dealer wants to make $5,000 for the sculpture, adding this to $3,080 for a pre-tax $8,080. She then adds the 2% cascade tax for a total price of $8,242. The government collected taxes of $242, which is actually a rate of 3.025% ($242/$8,000).
Citizen BondA type of certificateless municipal bond used to finance local government projects that require large, one-time expenditures.
A certificateless municipal bond that may be registered and traded on an stock exchange.
A certificateless municipal bond does not issue individual certificates in order to facilitate trade. A citizen bond provides an extra layer of ease by trading on an exchange. Unlike other municipal bonds, many citizen bonds have their prices listed in daily publications.
Conglomerate Merger
Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. This is just a unification of businesses from different verticals under one flagship enterprise or firm.
Closed-End Fund
A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
Deferred Shares
A share that does not have any rights to the assets of a company undergoing bankruptcy until all common and preferred shareholders are paid.
Deferred shares are a form of stock that is sometimes issued to key people within the issuing company. Usually, executives or directors of the company are eligible to receive deferred shares of stock. As part of a deferred share issue, the holders of the shares may not redeem them as long as they are in the employ of the company.
The rights are often restricted to such an extent as (deliberately) to make the shares worthless, this happens in the course of a capital restructuring and such deferred shares are usually eventually cancelled.
The ways in which deferred shares have lesser rights than ordinary shares include:
§ no voting rights (see non-voting shares),
§ rank lower for repayment of capital in the event of insolvency,
§ dividends may not be paid until a certain date, or until some triggering event has taken place,
§ dividends may not be paid until after other classes of shares have been paid,
§ the shares may not be tradable until a certain date or event. This may happen, for example, when shares issued to employees as part of their remuneration may not be immediately traded in order to give them a long term interest in the company.
As can be seen from the above, deferred can mean the opposite of preferred, but the variations possible mean that it is not really an exact opposite.
PIBS (permanent interest bearing shares) are considered a type of deferred share because of their low ranking in insolvency (despite the non-existence of ordinary shares to compare them to), but are not often referred to as such.
Flow-through shares
A flow‐through share (FTS) is a share, or the right to buy a share, of the stock of a mineral resource company where tax deductions “flow through” from the company to the investor.
Certain corporations in the mining, oil and gas, and renewable energy and energy conservation sectors may issue FTSs to help finance their exploration and project development activities. The FTSs must be newly issued shares that have the attributes generally attached to common shares.
A flow‐through share is issued under a written agreement between a corporation and an individual. Under the agreement, the individual agrees to pay for the shares, and the corporation agrees to transfer certain mining expenditures to the individual.
Flow-through shares were originally introduced to address an exploration financing inequity which arose between major and junior exploration companies.
Flow-through share investors can deduct their investments from otherwise taxable income.
Inheritance Tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died.
Inheritance tax is also known as an estate tax or death tax.
In international tax law, there is a distinction between an estate tax and an inheritance tax: an estate tax is assessed on the assets of the deceased, while an inheritance tax is assessed on the legacies received by the beneficiaries of the estate.
However, this distinction is not always respected in the language of tax laws.
For example, the "inheritance tax" in the United Kingdom
Junk Bonds
DEBT SECURITIES issued by companies with higher than normal credit risk. Considered "non-investment grade" bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk.
In other words, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade. These bonds have a higher risk of default or other adverse credit events (a financial event related to a legal entity which triggers specific protection provided by a credit derivative), but typically pay higher yields than better quality bonds in order to make them attractive to investors.
A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless profit. A merger arbitrageur looks at the risk that the merger deal will not close on time, or at all. Because of this slight uncertainty, the target company's stock will typically sell at a discount to the price that the combined company will have when the merger is closed. This discrepancy is the arbitrageur's profit.
A regular portfolio manager may focus only on the profitability of the merged entity. In contrast, merger arbitrageurs care only about the probability of the deal being approved and how long it will take the deal to close.
Risk arbitrage, or merger arbitrage, is an investment or trading strategy often associated with hedge funds.
An investment technique used to eliminate the risk of a single asset. In most cases, this means taking an offsetting position in that single asset.
If this asset is part of a larger portfolio, the hedge will eliminate the risk of the one asset but will have less of an effect on the risk associated with the portfolio.
Say you are holding the stock of a company and want to eliminate the price risks associated with that stock. To offset your position in the company, you could take a short position in the futures market, thereby securing the stock price for the period of the futures contract.
This strategy is used when an investor feels very uncertain about the future movement of a single asset.
Open Market Operations - OMO
The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.
An open market operation (also known as OMO) is an activity by a central bank to buy or sell government bonds on the open market. A central bank uses them as the primary means of implementing monetary policy. The usual aim of open market operations is to control the short term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply. This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments. Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation.
Follow the link to know latest News & Articles about OMO - http://articles.economictimes.indiatimes.com/keyword/open-market-operations
Phantom Stock
An employee benefit plan that gives selected employees many of the benefits of stock ownership without actually giving them any company stock.
Phantom stock provides a cash or stock bonus based on the value of a stated number of shares, to be paid out at the end of a specified period of time.
Phantom stock is essentially a cash bonus plan, although some plans pay out the benefits in the form of shares. Phantom stock is favored by closely held or family-owned companies who want to incentivize management and other employees without granting them equity. Phantom stock grants align employees' motives with owners' motives (that is, profit growth, increased stock prices) without granting employees an actual ownership stake in the company. Phantom stock can, but usually does not, pay dividends. When the payout is made, it is taxed as ordinary income to the employee and is deductible to the employer. Generally, phantom plans require the employee to become vested, either through seniority or meeting a performance target.
Normally, phantom stock is taxable upon vesting, even if not paid out.
A full ratchet enables early round investors to preserve the value of their initial investment in a down round. Essentially, the early ratchet-protected investors get additional "free" shares so that their effective share price equals the new lower price.
The investors avoid a markdown in the value of their investment. Ratchets are a mechanism for adding shares to an earlier investment round when a new round of financing is done at a lower share price.
The most simple and aggressive form is the full ratchet, which issues sufficient supplemental shares to investors in an earlier round so that their effective share price equals the lower share price of the new round.
This form of anti-dilution protection basically re-prices the earlier financing round to make a dollar in the earlier round equivalent to a dollar in the new round in terms of the percentage of outstanding shares bought by the investments in either round.
Full Ratchet Example
- Founders/Common: 20 shares
- Original investors: 10 shares at $10 per share, $100 investment for 1/3 ownership
- New investors: 50 shares at $1 per share, $50 investment
- Full ratchet effect: Original investors get 90 new shares, for a total of 100 shares (The ratchet entitles the original investors to won as many shares as their original investment would buy them at the new price. In this case that's 100 shares, and they already have 10 shares.)
Respective ownership percentages after new round:
With Full Ratchet
|
Without Full Ratchet
| |
Founders/Common
|
12%
|
25%
|
Original Investors
|
59%
|
13%
|
New Investors
|
29%
|
63%
|
The appeal of the full ratchet for the original investor is obvious. The effective price per share of the original investment is knocked down to the new price of $1 per share. In this example, the original investor's stake in the company also explodes to a super-majority, which could be useful in influencing the direction of the company down the road. Without the full ratchet, the original investor would be holding only 13% of the company after having paid twice what the new investor paid to hold 63% of the company.
Rights Offering
Issuing rights to a company's existing shareholders to buy a proportional number of additional securities at a given price (usually at a discount) within a fixed period.
Rights are often transferable, allowing the holder to sell them on the open market.
Secret Reserves
It is defined as "any reserve which is not apparent on the face of the balance sheet". It is sometimes called "hidden reserve", or 'internal reserve' or 'inner reserve.'
Secret reserves arise when a company overstates its liabilities or understates its assets, usually because its accounting practices depart from GAAP. In such cases, the company must declare that its accounting is different from that of most other companies.
This reserve represents the surplus of assets over liabilities and capital. It does not appear in the ledger. The creation of secret reserves strengthens the financial position of the concern. Its financial position would be better than what it would appear on the face of the balance sheet.
Secret reserve is created usually by joint stock companies especially banking, insurance and financial concerns.
A secret reserve is created by the following methods:
§ By under valuation of assets much below their cost or market value, such as investment, stock in trade, etc.
§ By not writing up the value of an asset, the price of which has permanently gone up.
§ By creating excessive reserve for bad and doubtful debts or discount on sundry debtors.
§ By providing, excessive depreciation on fixed assets.
§ By writing down goodwill to a nominal value.
§ By omitting some of the assets altogether from balance sheet.
§ By changing capital expenditure to revenue account and thus showing the value of assets to be less than their actual value.
§ By overvaluing the liabilities.
§ By the inclusion of fictitious liabilities.
§ By showing contingent liabilities as actual liabilities.
Subvented Lease
A type of lease where manufacturers will reduce the cost of the lease through a subsidy, usually through the increase of the residual value or the decrease of the interest rate.
In other words, a lease agreement subsidized by the manufacturer to make it more attractive and affordable for consumers. A subvented lease will often have lower monthly payments, a higher residual value, or a lower interest rate, in order to encourage potential customers.
Auto manufacturers often will offer a subvented lease on vehicle models that are not selling well.
For example, imagine that you were going to lease a car that is worth $20,000 and has a residual value of $5,000 after four years. Over the four-year period the car is expected to depreciate by $15,000, which would make your monthly payments $312.50
($15,000/48) - we assume no cost of borrowing for simplicity sake.
The car manufacturer could offer a subvented lease on the car by increasing the residual value to $7,500, which would decrease your monthly payment to $260.42 ($12,500/48).
Sweat Equity shares
Sweat equity shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company.
Sweat equity share is a good management tool for retention of human talent and guarding against poaching of staff of a running organization by a rival company.
Issue of Sweat equity shares is governed by the provisions of S. 79A of the Companies Act 1956.
Tax Wedge
The difference between before-tax and after-tax wages. The tax wedge measures how much the government receives as a result of taxing the labor force.
A measure of the market inefficiency that is created when a tax is imposed on a product or service. The tax causes the supply and demand equilibrium to shift, creating a wedge of dead weight losses.
In other words, Tax wedge is the difference between what employees take home in earnings and what it costs to employ them, or the dollar measure of the income tax rate. In some countries, the tax wedge increases as employee income increases. This reduces the marginal benefit of working therefore employees will often work less hours than they would if no tax was imposed.
By having a tax wedge the inefficiency will cause the consumer to pay more and the producer to receive less. This is due to higher equilibrium prices paid by consumers and lower equilibrium quantities sold by producers.
TAPO
A TAPO, Traded Average Price Option also known as an Asian option is an option in which the profit or loss to the investor is based not solely on the price of the underlying asset at expiration, but on the difference between the strike price and the average price of the underlying asset during the option's term.
One exchange where TAPOs are commonly traded is the London Metal Exchange, a major marketplace for futures in non-ferrous metals such as aluminum, copper, lead and zinc.
These call and put options come in contract lengths ranging from one to 27 calendar months and their settlement price is determined by the monthly average settlement price. TAPOs, traded options and futures are all used as hedging tools.
Tax Deed
A legal document that grants ownership of a property to a government body when the property owner does not pay the taxes due on the property.
A written instrument that provides proof of ownership of real property purchased from the government at a Tax Sale, conducted after the property has been taken from its owner by the government and sold for delinquent taxes.
Tax sale is a transfer of real property in exchange for money to satisfy charges imposed thereupon by the government that have remained unpaid after the legal period for their payment has expired.
Tax Selling
A type of sale whereby an investor sells an asset with a capital loss in order to lower or eliminate the capital gain realized by other investments. Tax selling allows the investor to avoid paying capital gains tax on recently sold or appreciated assets.
1. The act or practice of selling stock or other securities at a loss in order to offset gains from other investment or income. In the United States
2. The act or practice of selling stock or other securities at a gain in order to reduce an expected higher tax liability. Tax selling at a gain is common in December when an investor expects his/her income to be higher the following year. Thus, one pays the higher income tax on the gains this year rather than pay the higher still gains next year.
Tax Swap
A method of crystallizing capital losses by selling losing positions and purchasing companies within similar industries that have similar fundamentals.
In other words, Swapping two similar bonds to receive a tax benefit.
By tax swapping there is the presence of basis risk since the stock being sold and the stock being purchased are typically not identical and will react to different market factors individually.
A situation in which an investor sells a long position to claim a capital loss for tax purposes and immediately buys an equivalent position in a similar (but not the same) company or industry. A tax swap allows the investor to reduce his/her tax liability while not running afoul of the wash sale rule, which states that one cannot claim a capital loss for tax purposes if one repurchases the same position within 30 days.
Upstream Guarantee
A contingent liability on a subsidiary's financial statements in which the subsidiary guarantees its parent company's debt.
A guarantee in which a company guarantees the debt of its parent company. Investors in debt issued by a holding company frequently seek an upstream guarantee from the operating company which owns debt-supporting assets.
Downstream guarantee is a guarantee in which a company guarantees the debt of a subsidiary company.
