Treating cash flows as being received on exact dates – date 0, date 1, and so forth – as opposed to the end-of-year convention.
An order to buy or sell stock that automatically expires if it can’t be executed on the day it is entered.
Refers to establishing and liquidating the same position or positions within one day’s trading.
Days in receivables
Average collection period.
Days’ sales in inventory ratio
The average number of days’ worth of sales that is held in inventory.
Days’ sales outstanding
Average collection period.
Existing in actual fact although not by official recognition.
Dead cat bounce
A small upmove in a bear market.
An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price).
A market where traders specializing in particular commodities buy and sell assets for their own accounts.
Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.
An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral trust bonds.
Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.
Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases.
An asset requiring fixed dollar payments, such as a government or corporate bond.
The amplification of the return earned on equity when an investment or firm is financed partially with borrowed money.
The market for trading debt instruments.
Total debt divided by total assets.
Reducing the principal and/or interest payments on LDC loans.
IOUs created through loan-type transactions – commercial paper, bank CDs, bills, bonds, and other instruments.
Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).
Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one minus the tax rate.
A set of transactions (also called a debt-equity swap) in which a firm buys a country’s dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity.
Debtor in possession
A firm that is continuing to operate under Chapter 11 bankruptcy process.
New debt obtained by a firm during the Chapter 11 bankruptcy process.
Performance over time, rated on a scale of 1-10.1 indicates that a mutual fund’s return was in the top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all funds in the same investment strategy category. All Rank compares all funds.
Method of representing alternative sequential decisions and the possible outcomes from these decisions.
The date on which a firm’s directors meet and announce the date and amount of the next dividend.
Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.
Refers to multi-period cash flow matching.
The use of general fact to provide accurate information about a specific situation.
A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it’s called a zero coupon bond.
Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.
A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an issuer of a bond may be unable to make timely principal and interest payments.
Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower’s debt. Both the borrower’s debt and the offsetting cash or bonds are removed from the balance sheet.
A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
A common term for convertible bonds because of their equity component and the expectation that the bond will ultimately be converted into shares of common stock.
The most distant months of a futures contract. A bond that sells at a discount and does not pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-in-kind bond.
An excess of liabilities over assets, of losses over profits, or of expenditure over income.
The asset in a forward contract that will be delivered in the future at an agree-upon price.
The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.
The written notice given by the seller of his intention to make delivery against an open, short futures position on a particular date. Related: notice day
The options available to the seller of an interest rate futures contract, including the quality option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which Treasury Bond will be delivered or when it will be delivered.
Those points designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such contract.
The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the price at which the futures contract is settled when deliveries are made.
Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock.
A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the delta of the option.
The value of the portfolio is not affected by changes in the value of the asset on which the options are written.
Checking accounts that pay no interest and can be withdrawn upon demand.
An event that affects the demand for goods in services in the economy.
Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody.
To allocate the purchase cost of an asset over its life.
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring Long term assets over the useful life of the assets.
Markets for derivative instruments.
A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying security.
A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).
Liability-matching models that assume that the liability payments and the asset cash flows are known with certainty.
To remove the general drift, tendency or bent of a set of statistical data as related to time.
The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.
Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are in one currency.
A conception of the way a stock’s price changes that assumes that the price takes on all intermediate values. dirty price. Related: full price
Diminution in the proportion of income to which each share is entitled.
Result of a transaction that decreases earnings per common share.
Direct estimate method
A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category.
Lease in which the lessor purchases new equipment from the manufacturer and leases it to the lessee.
Commercial paper sold directly by the issuer to investors.
A system of floating exchange rates in which the government occasionally intervenes to change the direction of the value of the country’s currency.
Bond price including accrued interest, i.e., the price paid by the bond buyer.
A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm.
Referring to the selling price of a bond, a price below its par value.
Debt sold for less than its principal value. If a discount bond pays no interest, it is called a zero coupon bond.
Present value of $1 received at a stated future date.
The period during which a customer can deduct the discount from the net amount of the bill when making payment.
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury bills.
Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of governments or other acceptable paper.
Selling something on a discounted basis is selling below what its value will be at maturity, so that the difference makes up all or part of the interest.
Discounted cash flow (DCF)
Future cash flows multiplied by discount factors to obtain present values.
Discounted dividend model (DDM)
A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.
Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.
Calculating the present value of a future amount. The process is opposite to compounding.
Compounding the time value of money for discrete time intervals.
Discrete random variable
A random variable that can take only a certain specified set of discrete possible values – for example, the positive integers 1, 2, 3, . . .
Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.
Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.
A statistical process that links the probability of default to a specified set of financial ratios.
When two or more averages or indices fail to show confirming trends.
Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.
A dividend is a portion of a company’s profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.
A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a preference is often based on comparable tax situations.
Dividend discount model (DDM)
A model for valuing the common stock of a company, based on the present value of the expected cash flows.
Dividend growth model
A model wherein dividends are assumed to be at a constant rate in perpetuity.
Dividend payout ratio
Percentage of earnings paid out as dividends.
Dividends per share
Amount of cash paid to shareholders expressed as dollars per share.
An established guide for the firm to determine the amount of money it will pay as dividends.
The fixed or floating rate paid on preferred stock based on par value.
Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a company’s stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.
A shareholders’ rights to receive per-share dividends identical to those other shareholders receive.
Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.
Dividends per share
Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
The product of modified duration and the initial price.
Don’t know (DK, Dked)
“Don’t know the trade.” A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.
Method of accelerated depreciation.
A cross-border lease in which the disparate rules of the lessor’s and lessee’s countries let both parties be treated as the owner of the leased equipment for tax purposes.
Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.
A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S.companies are performing. There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities.
Barrier option that comes into existence if asset price hits a barrier.
Barrier option that expires if asset price hits a barrier.
A classic negative change in ratings for a stock, and or other rated security.
An unconventional order in writing – signed by a person, usually the exporter, and addressed to the importer – ordering the importer or the importer’s agent to pay, on demand (sight draft) or at a fixed future date (time draft), the amount specified on its face.
An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.
Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.
An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.
Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms of the profit margin and asset turnover.
A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.
Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions.
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.
A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.