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Zero Based Budgeting - ZBB

A method of budgeting in which all expenditures must be justified each new

period, as opposed to only explaining the amounts requested in excess of the

previous period's funding.

Supply Chain Management - SCM

The management and coordination of a product's supply chain for the

purpose of increasing efficiency and profitability.

Just In Time - JIT

An inventory strategy companies employ to increase efficiency and decrease

waste by receiving goods only as they are needed in the production process,

thereby reducing investory costs.

Inventory

Inventory can be either raw materials, finished items already available for

sale, or goods in the process of being manufactured. Inventory is recorded as

an asset on a company'sbalance sheet.

Balance Sheet

A company's financial statement that reports the assets, liabilities and net

worth at a specific time.

Activity Based Budgeting - ABBA method of budgeting in which activities that incur costs in each function

of an organization are established and relationships are defined between

activities. This information is then used to decide how much resource should

be allocated to each activity.

Accounting

To provide a record such as funds paid or received for a person or business.

Accounting summarizes and submits this information in reports and

statements. The reports are intended both for the firm itself and outside

parties.

Annual Report

A corporation's annual statement of financial operations. Annual reports

include a balance sheet, income statement, auditor's report, and a description

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of the company's operations.

Cook the Books

A fraudulent activity done by some corporations to falsify their financial

statements.

Cookie Jar Accounting

An accounting practice where a company uses generous reserves from good

years against losses that might be incurred in bad years.

Certified Public Accountant - CPA

A designation by the American Institute of Certified Public Accountants for

those who pass an exam and meet work-experience requirements.

Generally Accepted Accounting Principles - GAAP

The common set of accounting principles, standards and procedures thatcompanies use to compile theirfinancial statements. GAAP is a combination

of authoritative standards (set by policy boards) and simply the accepted

ways of doing accounting.

Auditor's Report

Recorded in the annual report, the auditor's report tests to see that a

corporation's financial statements comply with GAAP. This is sometimes

referred to as the clean opinion.

Cash Flow

The amount of cash a company generates and uses during a period,

calculated by adding non-cash charges (such as depreciation) to the net

income after taxes. Cash flow can be used as an indication of a company's

financial strength.

Income Statement

A financial report that - by summarizing revenues and expenses, and

showing the net profit or loss in a specified accounting period - depicts abusiness entitys financial performance due to operations as well as other

activities rendering gains or losses. Also known as the "profit and loss

statement" or "statement of revenue and expense".

Voodoo Accounting

Any form of accounting that does not follow principles of conservatism.
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While there are many methods by which financial statements can be fudged,

it always comes down to inflating revenue or hiding expenses. Examples of

accounting shenanigans include the big bath, cookie jar accounting and

improper recognition of revenue.

Big Bath

The strategy of manipulating a company's income statement to make poor

results look even worse. The big bath is often implemented in a bad year

to enhance artificially next year's earnings. The big rise in earnings might

result in a larger bonus for executives. New CEOs sometimes use the big

bath so they can blame the company's poor performance on the previous

CEO and take credit for the next year's improvements.

Earnings

The net income of a company during a specific period. Generally, but not

necessarily, referring to after-tax income.

Write-Off

A reduction in the value of an asset or earnings by the amount of an expense

or loss.

Bottom Line

Slang for net income or profit.

This term comes from the structure of the income statement: profit is

recorded on the bottom line of the sheet.

Net Income - NI

An individual's or company's total earnings, calculated by revenues adjusted

for costs of doing business, depreciation, interest, taxes and other expenses.

Often referred to as "the bottom line".

Top Line

A reference to sales or revenue.

Revenue

1. The dollar amount of sales during a specific period, including

discounts and returned merchandise. It is the "top line" figure from

which costs are subtracted to determine net income.

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2. When evaluating stocks, revenue growth serves as an indication of a

company's health.

Core Earnings

The revenue derived from a company's main or principal business less allassociated expenses.

Expenses

1. Money spent by a firm to continue its ongoing operations.

2. Money spent or costs incurred that are deductible and reduce yourtaxable

income.

Capital Expenditure - CAPEX

Funds used by a company to acquire or upgrade physical assets such as

property, industrial buildings, or equipment.

Capital Asset

A long-term asset that is not bought or sold in the regular course of business.

Capital

1. Financial assets or the financial value of assets such as cash.

2. The factories, machinery, and equipment owned by a business

Capital Appreciation

A rise in the market price of an asset.

Appreciation

The increase in value of an asset.

Depreciation

1. An expense recorded to reduce the value of a long-term tangible asset.

Since it is a non-cash expense, it increases free cash flow while

decreasing reported earnings.
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2. A decrease in the value of a particular currency relative to other

currencies

Accretion

1. Asset growth through addition or expansion.

2. In reference to discount bonds, it describes the accumulation of value until

maturity.

Earnings per Share - EPS

The portion of a company's profit allocated to each outstanding share of

common stock. Calculated as:

Outstanding Shares

Stock currently held by investors, including restricted shares owned by the

company's officers and insiders as well as those held by the public. Shares

that have been repurchased by the company are not considered outstanding

stock. They are also known as "issued shares" or "issued and outstanding".

Authorized Stock

The maximum number of shares that a corporation is legally permitted to

issue under its articles of incorporation. This figure is usually listed in the

capital accounts section of thebalance sheet.

Stock

A type of security that signifies ownership in a corporation and represents a

claim on part of the corporation's assets and earnings

American Depository Receipt - ADR

A negotiable certificate issued by a U.S. bank representing a specified

number of shares (or one share) in a foreign stock that is traded on a U.S.

exchange. ADRs are denominated in U.S. dollars, with the underlying

security held by a U.S. financial institution overseas, and help to reduce

administration and duty costs on each transaction that would otherwise be

levied.

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American Depository Share - ADS

A share issued under deposit agreement that represents an underlying

security in the issuer's home country.

Forex - FXThe foreign-exchange market ("forex" or "FX") is the place where

currencies are traded. The forex market is the largest, most liquid market in

the world with an average traded value of exceeds $1.9 trillion per day.

Foreign Currency Effects

The extent to which the changes in a foreign currency affects the return on a

foreign investment.

Repatriation

The process of converting a foreign currency into the currency of one's own

country.

Global Depository Receipt - GDR

1. A bank certificate issued in more than one country for shares in a foreign

company. The shares are held by a foreign branch of an international branch.

The shares trade as domestic shares, but are offered for sale globally through

the various bank branches.

2. A financial instrument used by private markets to raise capital

denominated in either U.S. dollars or Euros.

International Depository Receipt - IDR

A negotiable, bank-issued certificate representing ownership of stock

securities by an investoroutside the country of origin.

Depository Receipt

A negotiable financial instrument issued by a bank to represents a foreigncompany's publicly traded securities. The depository receipt trades on a local

stock exchange.

Unsponsored American Depository Receipt (ADR)

An ADR that is issued without the involvement of the foreign company

whose stock underlies the ADR. Shareholder benefits, voting rights, and
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other attached rights may not be extended to the holders of these particular

securities.

Voting Right

The right of a stockholder to vote on matters of corporate policy as well as

on who is to compose the board of directors.

Cumulative Voting

The procedure of voting for a company's directors, where each shareholder

is entitled one vote per share times the number of directors to be elected.

This is sometimes known as proportional voting.

Statutory Voting

The procedure of voting for a company's directors where each shareholder is

entitled to one vote per share. This is sometimes known as straight voting.

Voting Shares

Shares that give the stockholder the right to vote on matters of corporate

policy making as well as who will compose the members of the board of

directors.

Callable Preferred Stock

A type of preferred stock that carries the provision that the issuer has the

right to call in the stock at a certain price and retire it. Also referred to as aredeemable preferred stock.

Callable Bond

A bond that can be redeemed by the issuer prior to its maturity. Usually a

premium is paid to the bond owner when the bond is called. Also known as a

"redeemable bond".

Call Premium

1. The dollar amount over the parvalue of a callable fixed-income debt

security that is given to holders when the security is called by the

issuer.

2. The amount the purchaser of a call option must pay to the writer.

Conversion

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1. The translation of a convertible security into a predetermined number of

shares.

2. A strategy used by future traders whereby they mix the purchase of option

and futures contracts.

Bear Spread

1. An option strategy seeking maximum profit when the price of the

underlying security declines. The strategy involves the simultaneous

purchase and sale of options; puts or calls can be used. A higherstrike price

is purchased and a lower strike price is sold. The options should have the

same expiration date.

2. A trading strategy used by futures traders who intend to profit from the

decline in commodity prices while limiting potentially damaging losses.

Bear

An investor who believes that a particular security or market is headed

downward. Bears attempt to profit from a decline in prices. Bears are

generally pessimistic about the state of a given market.

Bear Market

A market condition in which the prices of securities are falling or areexpected to fall. Although figures can vary, a downturn of 15%-20% or

more in multiple indexes (Dow or S&P 500) is considered an entry into a

bear market

Bear Raid

The illegal practice of attempting to push the price of a stock lower by

taking large short positions and spreading unfavorable rumors about the

target firm.

Bear Hug

An offer made by a company to buy the shares of another company that is

too high for the board of the target firm to refuse.

Board of Directors - B of D

A group of individuals who are elected by stockholders to establish
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corporate management policies and make decisions on major company

issues, such as dividend policies.

Dividend

Distribution of a portion of a company's earnings, decided by the board ofdirectors, to a class of its shareholders. The amount of a dividend is quoted

in the amount each share receives or in other words dividends per share.

Cum Dividend

When a buyer of a security is entitled to receive a dividend that has been

declared, but not paid.

Cum Dividend

When a buyer of a security is entitled to receive a dividend that has been

declared, but not paid.

Ex-Date

The date on or after which a security is traded without a previously declared

dividend or distribution. After the ex-date, a stock is said to trade ex-

dividend.

Declaration Date

1. The date on which the next dividend payment is announced by the

directors of a company. This statement includes the dividend's size, ex-

dividend date and payment date. It is also referred to as the "announcement

date".

2. The last day on which the holder of an option must indicate whether they

will exercise the option. Also known as the "expiration date".

Equalizing Dividend

An additional dividend paid to eligible stockholders when their divided

income is reduced due to a change the board of directors makes to the

dividend payment schedule.

Dividend Policy

The policy a company uses to decide how much it will pay out to

shareholders in dividends.

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Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends.

Calculated as:

Ex-Dividend

The trading ofshares when a declared dividend belongs to the seller rather

than the buyer.Holder of Record

The name of the person who is the registered owner of a security.

Bearer Form

A security not registered in the books of issuing corporation but that is

payable to its bearer (the person possessing it). Securities can be issued in

two forms: registered or bearer. Registered form means the issuing firm

keeps records of a security's owner and mails out payments to him/her.Bearer form means the security is traded without any record of ownership,

so physical possession of the security is the sole evidence of ownership.

Most securities issued today are in registered form.

Book-Entry Securities

Securities that are recorded in electronic records called book entries rather

than as paper certificates.

Also referred to as "book-entry receipt."

Automated Bond System - ABS

The electronic system on the NYSE that records bids and offers for

inactively traded bonds until they are canceled or executed.

Ask
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The price a seller is willing to accept for a security, also known as the offer

price.

Ask Size

The number of shares a seller is selling at a quoted ask price.Bid Size

The number ofshares a buyer is willing to purchase at the quoted bid price.

Bid

1.An offer made by an investor, trader, or dealer to buy a security.

2. The price at which a market maker is willing to buy a security.

Best BidThe highest quoted bid for a particular stock among all those offered by

competing market makers.

Best Ask

The lowest quoted ask price for a particularstockamong those offered from

competing market makers.

Market Maker

A broker-dealer firm that accepts the risk of holding a certain number ofshares of a particular security in order to facilitate trading in that security.

Each market maker competes for customer order flow by displaying buy and

sell quotations for a guaranteed number of shares. Once an order is received,

the market maker immediately sells from its own inventory or seeks an

offsetting order. This process takes place in mere seconds.

Broker-Dealer

A person or firm in the business ofbuying and selling securities operating as

both abrokerand dealer depending on the transaction.Agent

1. An individual or firm that places securities transactions for clients.

2. A person licensed by a state to sell insurance.

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3. A securities salesperson who represents a broker-dealer or issuer when

selling or trying to sell securities to the investing public.

Analyst

A financial professional who has expertise in evaluating investments andputs together buy, sell, and hold recommendations on securities. Also known

as a financial analyst or security analyst.

Buy

1. A recommendation to purchase a specific security.

2. To acquire an asset in exchange for currency.

Buy and HoldA passive investment strategy with which an investor buys stocks and holds

them for a long period regardless of fluctuations in the market.

Dividend Reinvestment Plan - DRIP

A plan offered by a corporation allowing investors to reinvest their cash

dividends by purchasing additional shares or fractional shares on the

dividend payment date.

Automatic Investment Plan

An investment program that allows you to contribute small amounts of

money (as little as $20 a month) in regular intervals. Funds are automatically

deducted from your checking/savings account or your paycheck, and

invested in a retirement account or mutual fund.

Compounding

The ability of an asset to generate earnings that are then reinvested and

generate their own earnings.

Mutual FundA security that gives small investors access to a well-diversified portfolio of

equities, bonds and other securities. Each shareholder participates in the gain

or loss of the fund. Shares are issued and can be redeemed as needed.

Asset Allocation Fund - AAF
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A mutual fund that splits its investment assets among stocks, bonds and

other investment vehicles in an attempt to provide a consistent return for the

investor. Also referred to as a "diversification fund".

Blend Fund

A mutual fund composed of various asset classes (such as stocks, bonds and

money market securities), allowing investors to diversify their holdings by

owning just a single fund. Also called "hybrid funds".

Diversification

A risk management technique that mixes a wide variety of investments

within a portfolio. It is designed to minimize the impact of any one security

on overall portfolio performance.

PortfolioThe group of assets - such as stocks, bonds and mutuals - held by an

investor. To reduce their risk, investors tend to hold more than just a single

stock or other asset. Think of the portfolio as a pie: each piece is divided up

into specific assets such as bonds, equities, etc.

Portfolio Insurance

1. A method of hedging a portfolio of stocks against the market risk by short

selling stock index futures.

2. Brokerage insurance such as the Securities Investor Protection

Corporation (SIPC).

Hedge

Making an investment to reduce the risk of adverse price movements in an

asset. Normally, a hedge consists of taking an offsetting position in a related

security, such as a futures contract.

Delta HedgingAn options strategy that aims to reduce (hedge) the risk associated with price

movements in the underlying asset by offsetting long and short

positions. For example, a long call position may be delta hedged by shorting

the underlying stock. This strategy is based on the change in premium (price

of option) caused by a change in the price of the underlying security. The

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change in premium for each basis-point change in price of the underlying

is the delta and the relationship between the two movements is the hedge

ratio.

Delta

The ratio comparing the change in the price of the underlying asset to the

corresponding change in the price of a derivative.

Derivative

A security, such as an option or futures contract, whose value depends on the

performance of an underlying security or asset.

Forward Contract

A cash market transaction in which delivery of the commodity is deferred

until after the contract has been made. Although the delivery is made in thefuture, the price is determined on the initial trade date.

Commodity

Any bulk good traded on an exchange or in the cash market.

Commodity Swap

A swap where exchanged cash flows are dependent on the price of an

underlying commodity. This is usually used to hedge against the price of a

commodity.

Currency Swap

A swap that involves the exchange of principal and interest in one currency

for the same in another currency.

Currency Overlay

The outsourcing of currency risk management to a specialist firm, known as

the overlay manager. This is used in international investment portfolios to

separate the management of currency risk from the asset allocation andsecurity selection decisions of the investor's money managers.

Hard Currency

A currency, usually from a highly industrialized country, that is widely

accepted around the world.
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Soft Money

1. The "one-time" funding from governments and organizations for a

project or special purpose.

2. Paper currency, as opposed to gold, silver, or some other coined

metal.

Soft Currency

Another name for "weak currency." There is very little demand for this type

of currency and values often fluctuate.

Hard Money

1. Government and organizations refer to this as funding that is repetitive,

not a one time grant or gift.

2. Describes gold/silver/platinum (bullion) coins.

Bullion

Gold and silver that is officially recognized as high quality (at least 99.5%

pure), and is in the form of bars rather than coins.

Inflation

The rate at which the general level of prices for goods and services is rising,and, subsequently, purchasing power is falling.

Deflation

A general decline in prices, often caused by a reduction in the supply of

money or credit. Deflation can be caused also by a decrease in government,

personal or investment spending. The opposite of inflation, deflation has

the side effect of increased unemployment since there is a lower level of

demand in the economy, which can lead to an economic depression.

Hyperinflation

Extremely rapid or out of control inflation.

Disinflation

A slowing of the rate at which prices increase. Typically, this occurs during

a recession as sales drop and retailers are not able to pass on higher prices to

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customers.

Inflationary Psychology

The relationship between inflation and individuals' behavior.

StagnationA period of little or no growth in the economy. Economic growth of less

than 2-3% is considered stagnation. Sometimes used to describe low trading

volume or inactive trading in securities.

Stagflation

A condition of slow economic growth and relatively high unemployment

- a time of stagnation - accompanied by a rise in prices, or inflation

Consumer Price Index - CPIA measure of price changes in consumer goods and services such as

gasoline, food and automobiles. Sometimes referred to as "headline

inflation".

Personal Consumption Expenditures - PCE

A measure of price changes in consumer goods and services. It consists of

the actual and imputed expenditures of households and includes data

pertaining to durables, non-durables, and services. It is essentially a

measure of goods and services targeted towards individuals and consumed

by

Also referred to as "consumption."

Indicator

Anything used to predict future financial or economic trends.

Monetary Policy

The actions of a central bank, currency board, or other regulatory committee,that determine the size and rate of growth of the money supply, which in

turn affects interest rates.

Discount Rate

1. The interest rate that an eligible depository institution is charged to
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borrow short-term funds directly from a Federal Reserve Bank.

2. The interest rate used in determining the present value of future cash

flows.

Net Present Value - NPV

An approach used in capital budgeting where the present value of cash

inflows is subtracted by the present value of cash outflows. NPV is used to

analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an

investment or project will yield.

Formula:

Capital Budgeting

The process of determining whether or not projects such as building a new

plant orinvesting in a long-term venture are worthwhile.

Cost of Capital

The required return necessary to make a capital budgeting project

worthwhile, such as building a new factory. Cost of capital would include

the cost of debt and the cost of equity.

Cost of Equity

The return that stockholders require for a company. The traditional formula

is the dividend capitalization model:

Capital Asset Pricing Model - CAPM

A model describing the relationship between risk and expected return that is

used in the pricing of risky securities.

Capital Market Line - CML

A line used in the Capital Asset Pricing Model to illustrate the rates of return

for efficient portfolios depending on the risk free rate of return and the level

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of risk (beta) for a particular portfolio.

Standard Deviation

1. A measure of the dispersion of a set of data from its mean. The more

spread apart the data is, the higher the deviation.

2. In finance, standard deviation is applied to the annual rate of return of an

investment to measure the investment's volatility (risk).

Variance

A measure of the dispersion of a set of data points around their mean value.

It is a mathematical expectation of the average squared deviations from the

mean.

ZZZZ Best

A company owned by Barry Minkow in the 1980s. Through such means as

forgery and theft, Minkow appeared to be building a multimillion dollar

corporation. ZZZZ Best went public in December of 1986, eventually

reaching a market capitalization of over $200 million (U.S. Dollars).

Caveat Emptor

Another way to say, "let the buyer beware."

Zombies

Companies that continue to operate even though they are insolvent. Also

known as living dead.

Insolvency

When a company can no longer meet its debt obligations with another firm

or institution.

Bankruptcy

The state of a person or firm unable to repay debts.

Lady Macbeth Strategy

A corporate-takeover strategy with which a third party poses as a white

knight to gain trust, but then turns around and joins with unfriendly bidders.

Hostile Takeover
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A takeover attempt that is strongly resisted by the target firm.

Takeover

A corporate action where an acquiring company makes a bid for an acquiree.

If the target company is publicly traded, the acquiring company will make anoffer for the outstanding shares.

Acquisition

When one company purchases a majority interest in the acquired.

Merger

The combining of two or more companies, generally by offering the

stockholders of one company securities in the acquiring company in

exchange for the surrender of their stock.

De-merger

A corporate strategy to sell off subsidiaries or divisions of a company.

Reverse Triangular Merger

When the subsidiary of the acquiring corporation merges with the target

firm. In this case, the subsidiary's equity merges with the target firm's stock.

As a result of the merger, the target would become a wholly-owned

subsidiary of the acquirer and shareholders of the target would get shares of

the acquirer.

Tracking Stock

A stock issued by a parent company in order to create a financial vehicle that

tracks the performance of a particular division or subsidiary.

Carve-out (Equity Carve-Out)

1. Sometimes known as a partial spinoff, a carve out occurs when a parent

company sells a minority (usually 20% or less) stake in a subsidiary for an

IPO or rights offering.

2. Where an established brick-and-mortar company hooks up with venture

investors and a new management team to launch an Internet spinoff.

Split-Up

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Exchanging the stock of two or more subsidiary companies for all of the

parent company's stock, followed by the liquidation of the parent

company

Consolidated Financial Statements

The combined financial statements of a parent company and its subsidiaries.

Parent Company

A company that controls other companies by owning an influential amount

of voting stock.

Subsidiary

A company whose voting stock is more than 50% controlled by another

company, usually referred to as the parent company.

Wholly Owned Subsidiary

A subsidiary whose parent company owns 100% of its common stock.

Initial Public Offering - IPO

The first sale of stock by a private company to the public. IPOs are often

smaller, younger companies seeking capital to expand their business.

Also referred to as a "Public Offering."

Underwriting

1. The process by which investment bankers raise investment capital from

investors on behalf of corporations and governments that are issuing

securities (both equity and debt).

2. The process of issuing insurance policies.

Syndicate

A group ofbankers, insurers, etcetera, who work together on a large project.

Spread

1. The difference between the bid and the ask prices of a security or asset.

2. An options position established by purchasing one option and selling
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Index

A statistical measure of change in an economy or a securities market. In the

case of financial markets, an index is essentially an imaginary portfolio of

securities representing a particular market or a portion of it. Each index has

its own calculation methodology and is usually expressed in terms of achange from a base value. Thus, the percentage changes is more important

that the actually numeric value. For example, knowing that a stock exchange

is at, say, 5,000 doesn't tell you much. However, knowing that the index has

risen 30% over the last year to 5,000 gives a much better demonstration of

performance.

Futures

A financial contract that obligates the buyer (seller) to purchase (sell and

deliver) financial instruments or physical commodities at a future date,unless the holder's position is closed prior to expiration.

Arbitrage

The simultaneous purchase and selling of an asset in order to profit from a

differential in the price. This usually takes place on different exchanges or

marketplaces. Also known as a "riskless profit".

Market Value Added - MVA

The difference between the market value of a company and the capitalcontributed by investors (both bondholders and shareholders). In other

words, it is the sum of all capital claims held against the company plus the

market value ofdebt and equity.

Economic Value Added - EVA

A measure of a company's financial performance based on the residual

wealth calculated by deducting cost of capital from its operating profit

(adjusted for taxes on a cash basis). (Also referred to as "economic profit".)

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

Market Capitalization
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The total dollar value of all outstanding shares. It's calculated by multiplying

the number of shares times the current market price. This term is often

referred to as market cap.

Common Stock

A security that represents ownership in a corporation. Holders of common

stock exercise control by electing a board of directors and voting on

corporate policy. Common stockholders are on the bottom of the priority

ladder for ownership structure. In the event of liquidation common

shareholders have rights to a company's assets only after bond holders,

preferred shareholders, and other debt holders have been paid in full.

Leveraged Buyout - LBO

A strategy involving the acquisition of another company using borrowedmoney (bonds or loans). The acquiring company uses its own assets as

collateral for the loan in hopes that the future cash flows will cover the loan

payments.

Management Buyout - MBO

When the managers and/or executives of a company purchase controlling

interest in a company from existing shareholders.

Venture Capitalist

An investorwho provides capital to either start-up ventures or support small

companies who wish to expand but do not have access to public funding.

Angel Investor

A financial backer providing venture capital funds for small start-ups or

entrepreneurs.

Seed Capital

The initial equity capital used to start a new venture or business.

Operating Leverage

A measurement of the degree to which a firm or project relies on fixed rather

than variable costs.

Variable Cost

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A cost that changes in proportion to a change in a company's activity or

business.

Sunk Cost

A cost that has been incurred and cannot be reversed. Also referred to as"stranded cost."

Outlay Cost

Any concrete costs that can be identified in the past, present, or future.

Opportunity Cost

1. The cost of an alternative that must be forgone in order to pursue a certain

action. Put another way, the benefits you could have received by taking an

alternative action.

2. The difference in return between a chosen investment and one that is

necessarily passed up. Say you invest in a stock and it returns a paltry 2%

over the year. In placing your money in the stock, you gave up the

opportunity of another investment - say, a risk-free government bond

yielding 6%. In this situation, your opportunity costs are 4% (6%-2%).

Implicit Cost

A cost that is represented by lost opportunity in the usage of a company'sown resources, excluding cash.

Explicit Cost

A cost that is represented by lost opportunity in actual cash payments.

Greenshoe Option

An option that allows the underwriting of an IPO to sell additional shares to

the public if the demand is high.

Eating Stock

Purchasing stock not because you desire it but because you are forced to do

so.

Red Herring

A preliminary registration statement that must be filed with the SEC
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describing a new issue of stock (IPO) and the prospects of the issuing

company.

Prospectus

1. A formal legal document describing details of a corporation. Theprospectus is generally created for a proposed offering (usually an IPO), but

they can still be obtained from existing businesses as well. The prospectus

includes company facts that are vitally important to potential investors.

2. In this case of mutual funds, a prospectus describes the fund's objectives,

history, manager background, and financial statements.

Sandbag

A stalling tactic used by management to deter a company that is showinginterest in taking them over.

Lobster Trap

A strategy used by a target firm to prevent a hostile takeover. In a lobster

trap, the company passes a provision preventing anyone with more than 10%

ownership from converting convertible securities into voting stock.

Poison Pill

A strategy used by corporations to discourage a hostile takeover by another

company. The target company attempts to make its stock less attractive to

the acquirer. There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the acquirer) to buy more

shares at a discount.

2. The "flip-over" allows stockholders to buy the acquirer's shares at a

discounted price after the merger.

Suicide Pill

A defensive strategy by which a target company engages in an activity that

might actually ruin the company rather than prevent the hostile takeover.

Also known as the "Jonestown Defense."

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Whitemail

A strategy that a takeover target uses to try and thwart an undesired takeover

attempt. The target firm issues a large amount of shares at below-market

prices, which the acquiring company will then have to purchase if it wishes

to complete the takeover.

Bankmail

An agreement made between a company planning a takeover and a bank,

which prevents the bank from financing any other potential acquirer's bid.

Greenmail

A situation in which a large block of stock is held by an unfriendly

company. This forces the target company to repurchase the stock at a

substantial premium to prevent a takeover. It is also known as a "BonVoyage Bonus" or a "Goodbye Kiss".

Shark Repellent

Any number of measures taken by a corporation to discourage an unwanted

takeover attempt.

Pac Man

A form of defense used in a hostile takeover situation. The target firm turns

around and tries to take over the company that has made the hostile bid.

Macaroni Defense

An approach taken by a company that does not want to be taken over. The

company issues a large number ofbonds with the condition they must be

redeemed at a high price if the company is taken over.

Sleeping Beauty

A company that is prime for takeover but has not been approached by an

acquiring company.Scorched Earth Policy

An anti-takeover strategy that a firm undertakes by liquidating its valuable

and desired assets and assuming liabilities in an effort to make the proposed

takeover unattractive to the acquiring firm.
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Saturday Night Special

A slang term used to refer to a surprise takeover attempt.

Blank Check Preferred Stock

A method companies use to simplify the process of creating new classes ofpreferred stockto raise additional funds from sophisticated investors without

obtaining separate shareholder approval.

Articles of Incorporation

A set of documents filed with a government body for the purpose of legally

documenting the creation of a corporation. Also referred to as the "corporate

charter."

Participating Preferred Stock

A type ofpreferred stockthat, under certain conditions, gives holders the

right to receive earnings payouts over and above the specified dividend rate.

Unbundling

The process of taking over a large company with several different lines of

business, and then, while retaining the core business, selling off the

subsidiaries to help fund the takeover.

Crown Jewels

The most valuable unit of a corporation because of profitability, asset value,

future prospects, etc.

Yard

Slang for one billion units in currency.

Woody

Slang to describe when the market has a strong and quick upward

movement.

Winner's Curse

A financial theory that the winning participants within an auction will

typically pay an overvalued price for the winning item.

Window Dressing

A strategy used by mutual fund and portfolio managers near the year or

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quarter end to improve the appearance of the portfolio/fund performance

before presenting it to clients or shareholders.

Fund Manager

The person responsible for investing a mutual fund's assets, implementing itsinvestment strategy, and managing the day-to-day portfolio trading.

Portfolio Manager

The person responsible for investing a mutual fund's assets, implementing its

investment strategy, and managing the day-to-day portfolio trading.

Gunslinger

A high-strung portfolio managerwho, looking for high returns, invests in

very high-risk stock.

Hedge Fund

An aggressively managed fund portfolio taking positions in both safe and

speculative opportunities.

Winding Up

A process that entails selling all the assets of a business entity, paying off

creditors, distributing any remaining assets to the principals, and then

dissolving the business.

Wild Card Play

Having the right to deliver on a futures contract at the last closing price,

even though the contract is no longer trading.

Wild Card Option

An option associated with treasury bond or treasury note futures contracts

that permits the short position to delay the delivery of the underlying.

Widow-and-Orphan Stock

Relatively low-risk stocks from well-known firms that pay high dividends.

White Elephant

Any investment that nobody wants because it is unprofitable.

Falling Knife
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A stockwhose price has fallen significantly in a short period of time.

Whistle Blower

An employee who has inside knowledge of illegal activities occurring within

his or her organization and reports these to the public.Insider Trading

The buying or selling of a security by someone who has access to material,

nonpublic information about the security.

Open-Market Transaction

An order placed by an insider, after all appropriate documentation has been

filed, to buy or sell restricted securities openly on an exchange.

Black FridayA day of stock market catastrophe. Originally, September 24th, 1869 was

termed Black Friday. The crash was sparked by gold speculators including

Jay Gould and James Fist attempting to corner the gold market. Their

attempt failed and the gold market collapsed, causing the market to tank.

Black Monday

The most notorious day in financial history (October 19, 1987). The DJIA

fell 508 points, almost 22%.

Financial Terms

1)IPO glossary

Allotment

Allotment is the distribution of shares to the public during an offer. The

normal rule of allocation is to allocate the shares in the event of

oversubscription on a proportionate basis. This however excludes the firm

allotment portion.

Auditor

An auditor is an individual who conducts an examination and verification of

a company's financial and accounting records and supporting documents.

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Annual General Meeting (AGM)

The shareholders meeting, usually held at the end of each financial year, to

discuss the previous performance and future outlook.

Authorised Capital

The maximum equity capital a company can raise, which is mentioned in the

Memorandum of Association and Articles of Association of the Company.

However, share premium is excluded from the definition of authorized

capital.

Book Building

In a book building offer, the syndicate members decide the price range and

the people decide the price of the issue based on a tender method.

Bankers to the issue

Bankers to the issue are entities that are registered by SEBI and act as issue

and collecting centres for IPO forms and cheques.

Brokers

Companies making public issues appoint brokers to procure subscription.

The managers to the issue distribute prospectuses and application forms to

the brokers. These brokers form a very important link in the distribution

value chain of financial products.

Brokerage

It is the commission paid to the brokers for the purchase and sale of shares.

Bonus Issues

They are the shares issued to capitalize on the reserves and surplus of the

company without charging the shareholders. From the accounting

perspective it involves a debit to the free reserves and a credit to the share

capital.


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Bridge Loan

A Bridge Loan is a loan that is used for a short duration of time until

permanent financing is put in place. Companies that come out with an IPO

issue access bridge finance for the interim period before the issue proceedsare actually realized.

Conditional Offer

An offer to purchase securities depending on the effectiveness of a

registration statement and the pricing of an IPO.

Dematerialisation

Dematerialisation or "Demat" is a process of converting the physical

securities into electronic form and stored in computers by a Depository.

Securities present in the physical form are surrendered to the respective

company which will then nullify them and credit the depository account.

Direct Public Offerings

Offering of securities to the public directly by an issuer without the

assistance of any Investment Banking

firm.

Draft Prospectus

A draft prospectus provides the information on the financials of the

company, promoters, background, tentative issue price etc. It is filed by the

Lead managers to SEBI to provide issue details. Overview of the draft

prospectus can be seen on www.sebi.gov.in (SEBIs web site). The final

prospectus is printed after obtaining the clearance from SEBI and Registrar

of Companies (ROC).

Bought Out Deals

A bought out deal is a process by which an investor (usually the investment

banker) buys out a significant portion of the equity of an unlisted company

with a view to make it public within an agreed time frame.

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Private Placement

A type of offering, exempted from registration that allows the issuing

company to avoid registration requirements and save underwriting fees by

offering company shares directly to institutional and accredited investors.Rights Issues

If a company wants to increase its subscribed capital by allotment of further

shares after 1 or 2 years of first allotment, it has to offer to the existing

shareholders first in proportion to the capital paid up on the shares held by

them.

American depository Receipt (ADR)

They are negotiable certificates that represent a certain number of shares of a

foreign stock traded on a US exchange and held by a US bank.

Global Depository Receipt (GDR)

They are negotiable certificates held by a bank of one country that represent

a certain number of shares of a foreign stock traded on another exchange,

usually a European exchange. The accounting requirements for GDRs are

not as stringent as that for ADRs.

Firm Allotment

Out of the total amount the company proposes to raise in the market, some

portion is fixed to the promoters in order to avoid diluting their stake in the

company. This is called Firm Allotment.

Filing

A copy of prospectus having attached to the documents required to be

submitted to the Registrar of Companies (ROC).

Flipping

The practice of subscribing to a new security offer and quickly selling it in

the after-market.


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Extraordinary General Meeting (EGM)

The meeting which is not an annual general meeting. This can be conducted

by any point of time whenever the company needs to take some crucial

decisions.Secondary Offering

The sale of newly issued securities by an issuer which already has publicly

traded securities.

Issued capital

The capital proposed by the company to be raised from the market. Out of

the issued capital the shares for which both application and allotment monies

are paid in full represents the paid-up capital.

Guest User

A person who is not a trading member (and hence cannot subscribe a new

issue) but is eligible to view listings and prospectus of new issues.

IPO

Initial Public Offer (IPO) is a source of collecting money from the public for

the first time in the market to fund for its projects. In return, the company

gives the share to the investors in the company

Investment Banking Firm

A financial entity acting as an underwriter or agent, and serves as an

intermediary between an issuer of securities and the investing public.

Investment bankers perform various services: financing, facilitating mergers,

corporate restructuring activities, broking and trading on their own accounts.

Issuer

An entity, like a company, municipality or government, that has the power

to issue and distribute securities.

Impersonation

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A person who

a) uses fictitious names for acquiring or subscribing shares

b) induces the company to allot or register any transfer of shares to him or

any other person in a fictitious name

Joint Applications

Applications can be filled in single or in joint names (more than one person).

In joint application, all payments will be made in favor of the first applicant.

Listing

The process of making the securities officially quoted on the notified stock

exchange for the trade.

Multiple Applications

Two or more applications submitted on a single name are considered as

multiple applications.(An applicant is supposed to submit only one

application irrespective of the number of shares applied for.) The

applications submitted for both electronic and physical equity shares are

considered as multiple applications.

Minimum Subscription

The minimum shares the company needs to get from the public out of the

total issue by the date of closure. (Presently every company need to raise

90% of the issued amount). Else, the company shall refund the whole

amount received. This 90 % has to be exclusive of the cheques that are not

cleared.

Oversubscription

Any extra amount received by the company more than the proposed issued

capital.

Lead Managers

The lead manager is appointed by the company which desires to raise capital


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from the market. The lead manager performs the following activities:

Designing the instrument

Pricing the issue

Timing the issue

Marketing

Preparing the offer document

Listing

Allotment/Refund

Merchant Bankers

Merchant Bankers facilitate the issue process.

Role of Merchant Banker:

Directing and co-ordinating the activities with under writers, registrars and

bankers.

Assuring the investors of the soundness of the issue

Promising companies/entrepreneurs/promoters to tap resources, Complying

with SEBI guidelines.

National Securities Depository Limited (NSDL)

This is an organization, which is an intermediary between the Registrar and

the company for dematerialisation of shares.

Net Offer

The rest of the issued capital after allotting to promoters, which would be

raised from the public is called Net Offer.

Paid Up capital

The part of the issued capital of a company that has been paid up by the

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shareholders

Preferential Shares

These are the shares issued at a fixed coupon rate to investors which entails

the foregoing of the right to participate in the management.

Profit Earning (P\E) ratio

P/E is the ratio of a company's share price to earnings per-share. It

essentially shows the amount that an investor is willing to pay for every one

rupee earned by the company.

Prospectus

The official offer document included in the registration statement filed with

SEBI in conjunction with a public offer. The prospectus contains

information about the offer of securities and should be given to the original

purchasers no later than the written confirmation of their purchase.

Registration Statement

A document that must be filed with SEBI before securities can be sold to the

public. It describes the business of the issuer of the securities, how the

proceeds of the offering will be used, audited financial statements, some

background on the principal executives, and other pertinent data.

External Risk Factors

The external factors that influence the companys performance vis-a-vis

share performance, which has to be spelt out by the company in the offer

document. These are usually factors like changes in macroeconomic

variables which are outside the control of the company.

Internal Risk Factors

The internal factors that influence the companys performance vis-a-vis

share performance, which has to be spelt out by the company in the offer

document. These are usually factors pertaining to the companys internal


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operations and management which are within the control of the company.

Management Perception of Risk Factors

The managements comment on the possible impact of the risk factors and a

statement of how the company is prepared to tackle and overcome these riskfactors.

Rights Issue

In order to avoid dilution of stake of existing shareholders, company issues

"rights" shares in proportion to their current holding. This is done when the

company plans to tap the market after their IPO.

Registrar

They play an administrative role in conducting a public issue. They are

responsible for collecting information from the collecting banks and report

to the companies and lead managers about the issue collections. They advise

the company regarding the closure or extension of closing date of the issue.

Stock Option

The right to buy a stock at a specified price at a specified time in the future.

Stock options are usually given to senior managers and executives as anincentive to continue with the company.

Underwriter

An investment banking firm which enters into a contract with the issuer of

new securities to distribute them to the investing public.

Underwriting Commission

The commission paid to the underwriter for bearing the risk of an issue.

Venture Capital

An important source of financing used to fund start-up companies that do

not have access to capital markets. Venture Capital typically entails

significant investment risk but offers the potential for above-average future

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returns.

Mutual Fund Glossary

Active Portfolio Management

Is a systematic and proactive approach to investment with the goal of

beating the market. This strategy is based on the premise that markets are

not efficient and that there is scope to earn abnormal profits through an

active investment strategy.

Annualized Return

The return a fund would have generated over a year on a compounded basis.

This method is the best indicator to measure the performance of a fund.

Asset Management Company (AMC)

A Company registered with SEBI, which takes investment/ divestment

decisions for the mutual fund, and manages the assets of the mutual fund.

e.g. for Sun F&C mutual fund , the AMC is Sun F&C Asset Management

(India) Pvt. Ltd.

Asset Allocation

It is the process of allocating the overall corpus to different assets like

equities, bonds, real estate, derivatives etc.

Credit Risk

It is the risk that the issuer of a fixed income security may default on

payment of interest and repayment of principal. It is also referred to as

default risk.

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A fund that invests in debt securities like Government securities, Treasury

Bills, corporate Bonds etc. These funds are generally preferred by investors

wanting steady income and not willing to take higher risks.

Dematerialization

The process of converting the physical /paper shares in Electronic form.

SEBI had made it compulsory to get the shares of some companies

dematerialized. In this process the investor opens an account with a

Depository Participant (DP) and the number of shares the investor holds is

shown in this account.

Depository Participant

An authorized body who is involved in dematerialization of shares and

maintaining of the investors accounts.

Discount/Premium to (Net Asset Value) NAV

It is the difference between the unit price and NAV. If the price is higher

than the NAV, the units are trading at premium: if the price is lower, theunits are trading at a discount.

Diversification

It is the investment strategy of not putting all ones eggs in one basket. By

diversifying a portfolio across different industries, overall risk of the

portfolio is red

Dollar Cost Averaging

The strategy of dividing the investible amount into a number of equal parts

and buying at regular intervals to take advantage of lower prices. This

strategy is more beneficial in a bear phase.

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Efficient Portfolio

A portfolio which ensures maximum return for a given level of risk or a

minimum level of risk for an expected return.

Factor Fund

It is a mutual fund that has a core philosophy of investing in a particular

factor or style in the market. They are also referred to as Style Funds.

Examples of factor funds are Mid-cap funds, Low P/E funds, Growth funds

etc.

Financial Pyramid

An investment plan in the shape of a pyramid structure where the safest

investments are at the base and the riskiest investments at the peak.

Fixed Income Security

A type of security that pays fixed interest at regular intervals. Thesecomprise gilt-edged securities, bonds (taxable and tax-free), preference

shares and debentures. Less risky than equity shares and have little scope for

capital appreciation.

Equity/Growth fund

A fund that invest primarily in equities and has capital appreciation as its

investment objective

Fund Manager

A professional manager appointed by the Asset Management Company to

invest money in accordance with the objects of the scheme.


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Income Fund

A fund that usually invests in debentures, bonds, and high dividend shares.

Preferred by investors who wants regular income. It pays dividends to theinvestors out of its earnings.

Initial Offer Period

The dates on which the initial subscription to the units of the scheme can be

made. It is similar to the IPO of an equity issue. This initial offer period is

followed by a continuous offer period.

Interest Rate Risk

The change in the price of a debt security due to changes in the market

interest rates is the interest rate risk. For debt oriented mutual fund schemes,

this interest rate risk affects the NAV of the fund. A rise in the interest rates

leads to a fall in the price of a fixed income security.

Interim Dividend

An advance installment of the dividend finally declared. More often one, but

sometimes two such payments are made. The final dividend is often at least

equal, and sometimes more. The interim dividend is a fair indication of a

company's profitability, during the working year.

Liquid Fund

A fund that invests its corpus in short term instruments like call markets,

treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).

Liquidity Risk

It is the risk in a fixed income security as well as in equities that these

securities may not be sold in the market at close to their value. Liquidity risk

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is characteristic of narrow markets like India.

Market Capitalization

Represents the market value of the company. It is a product of the current

market price and the number of shares outstanding.Market Instrument

A fully negotiable instrument for short-term debt.

Market Lot

A fixed minimum number of shares, in which or in multiples of which,

shares are bought and sold on the stock exchange. The advent of

dematerialization of shares will do away the significance of market lot.

Net Asset Value (NAV)

This is calculated as total assets minus all expenses and divided by the

number of outstanding units. This is the main performance indicator for a

mutual fund, especially when viewed in terms of appreciation over time.

No-Load Fund

Shares of an open-ended fund, which can be bought directly from the fund

without any sales charge or brokerage. US-64 is an example of a no-load

fund.

Offer Price

The price at which units can be bought from a fund.

Offshore Fund

A fund domiciled outside the country where investments are made. It is

often a tax haven, not subject to the tax laws of the holder's country.

Pari Passu

Ranking equally. After conversion of debentures into shares, the new shares

created carry the same rights as the existing shares of the company to receive

dividends, rights and bonus shares, and to participate in the company's profit

and loss.

Passive portfolio management


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Exactly the reverse of active portfolio management. The portfolio manager

assumes that markets are efficient and all information is already analyzed

and reflected in the prices of shares. This strategy is based on the premise

that it is impossible to consistently beat the market.

Rating

Evaluation of credit risk in fixed income securities. This evaluation is

specific to the security rated and is done in India by Crisil, Icra, Care and

Duff & Phelps.

Record Date

It is the date announced by the company/mutual fund, which is a cut-off date

for corporate benefits like dividends, rights, bonus etc. Only investors whose

names appear in the companys registers on that date are eligible for the saidbenefits.

Reinvestment Plan

It is a plan where the earnings of a mutual fund scheme are reinvested back

in the fund.

http://www.karvy.com/mfd/glossary.htm - TOP%23TOPReinvestment Risk

It is the risk that the interest on fixed income instruments cannot be

reinvested at the same rate. This problem becomes pronounced in a falling

interest rate scenario.

Sector fund

Such funds invest only in stocks belonging to a specific industry usually

aimed at growth. For e.g. Kothari Pioneer Infotech Fund. Sector funds are

generally considered to be risky in nature.

Securities

Financial documents which give the owner specific rights of ownership;

these include: equity and preference shares, debentures, treasury bills,

government bonds, units of mutual fund, and any other marketable

documents.

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Sinking Fund

Money regularly set aside in a separate fund and invested by a company for

the repayment of debt instruments (fixed deposits, debentures, other loans)

or the redemption of preference shares, or for replacement of assets.Sponsor

Sponsor is the parent organization that contributes the initial capital of the

asset management company (AMC). e.g. Kotak Mahindra Finance is the

sponsor for Kotak Mahindra Mutual Fund.

Switching

Transferring from one scheme to another in a group of schemes operated bya Mutual Fund, where the rules so permit. A switching fee may or may not

be

SWOT Analysis

A type of fundamental analysis of the health of a company by examining its

strengths(S), weakness (W), business opportunity (O), and any threat (T) or

dangers it might be exposed to.

Systematic Risk

This is the market risk that a security faces and is essentially non-

diversifiable in nature. This risk is caused by macro level factors like

changes in inflation, interest rates, budget announcements etc.

Tax saving fund

Such funds allow the income tax payees to claim a rebate under the Income

Tax Act.

Technical Analysis

A method of prediction of share price movements based on a study of price

graphs or charts on the assumption that share price trends are repetitive.

Since investor psychology follows a certain pattern, what is seen to have

happened before is likely to be repeated. The technical analyst is not

concerned with the fundamental strength or weakness of a company or an


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industry; he only studies price and volume behavior.

Top-Down Investment

An approach to stock selection which evaluates the prospects of the

economy first, then the prospects of the industry and then finally theprospects of a particular company to take an investment decision. It is the

opposite of a bottom-up approach to investing.

Transfer Agents

Professional firms, now mostly computerized, which maintain the records of

shareholders of their client companies.

Treasury Bills

These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India

for short-term loans, 91 days to 364 days.

Trustee

The trustee is the legal owner of the mutual fund. The trustee takes into

custody or under its control all the capital and property of every scheme of

the mutual fund and hold it in trust for the unitholders of the scheme.

Unsystematic Risk

This is the proportion of risk that is specific to a particular company. This

diversifiable risk could arise due to company specific factors like operational

factors, financial factors, labor unrest etc.

Value Investment

Investment in shares whose intrinsic value is above their market price.

Fundamental analysts often make recommendations of value investment, as

they can spot undervalued shares.

Vulture Fund

It is a fund that takes over the non-performing assets of bank or financialinstitution at a discount and issues pass-through units to the investors.

Venture Capital Fund

A limited company formed to provide venture or risk capital to new

industries.

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Zero Coupon Bond

A coupon is an interest warrant attached to a debt instrument, and the

coupon rate is the rate of interest. A zero-coupon bond carries no interest,

but is sold at a discount to its face value, which is the maturity value. Thedifference between the discounted price and the maturity value represents

the interest on the bond.

3) Stock market glossary

Arbitrage

The business of taking advantage of difference in price of a security tradedon two or more stock exchanges, by buying in one and selling in the other

(or vice versa). Quite simply it means you try to buy something cheap in one

place, to make a profit selling it somewhere else.Given the speed at which

the financial markets now operate, in practice the simultaneous purchase of

foreign exchange, securities, commodities or any other financial instrument

in one market and the sale in another at a higher price.

American Depository Receipt (ADR)

A stock representing a specified number of shares in a foreign corporation.

ADR's are bought and sold in the American markets just like regular stocks.

An ADR is issued by a U.S. Bank, consisting of a bundle of shares of a

foreign corporation that are being held in custody overseas. The foreign

entity must provide financial information to the sponsor bank. ADR's are

listed on either the NYSE, AMEX, or NASDAQ.

American Depository Share (ADS)

A share issued under deposit agreement that represents an underlying

security in the issuer's home country. The term ADR and ADS are thought to

be the same, they sort of are. ADS is the actual share trading while ADR

represents a bundle of ADSs.

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Settlement of claims differences or disputes between one member and

another and between a member and his clients, authorised clerks, sub-

brokers etc., through appointed arbitrators.

Bearer SecurityThis is a bond or a share for which there is no other proof of ownership than

the physical possession of the security. No official record or register of

ownership is kept, the owner is the "bearer" of the share or bond certificate.

This means that these certificates are easily traded without formality. If you

own bearer securities, look after them! No dividend is paid to such shares

and no interest paid to such bonds. Instead the certificate will have several

coupons attached. These must be physically removed from the certificate

and presented to the originating company for payment of any dividen

term in a logy

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