The role of this glossary is to present brief definitions of most of the key concepts in corporate finance and management (in total 900 names-definitions) with aim the reader to be able to understand and become familiar with the terminology in the analyses that will present in the category Corporate & Business.
Additionally, we hope that the reader by acquiring intimacy with the specific terminology, he will also love the science of finance and management, giving to it a significant part of his personal time.
In the following glossary we tried to include the most well-known definitions and terms in the field of Corporate Finance & Management. If you still find that a term or definition is missing and you know that it can be included in this glossary, please do not hesitate to contact us via the contact form of our web-site (Contact Us) and the Liberal Globe will edit it and will include it.
Glossary Corporate Finance & Management
There are currently 95 names in this directory beginning with the letter C.
Call option
is called the option to buy an asset at a specified exercise price on or before a specified exercise date.
Call premium
is named the term which is defined as: (1) the difference between the price at which a company can call its bonds and their face value; (2) the price of an option.
Capital asset pricing model (CAPM)
is the model that calculates the required return on an asset as a function of the risk-free rate plus the market risk premium times the asset’s beta.
Capital intensity
in economics context is the ratio of investment required per dollar of sales. In finance context, is the sales to investment ratio. The steel industry and manufacturing generally are more capital intensive than the wholesale or retail industries.
Capital market
is another name of financial market (particularly the market for long-term securities).
Capital rationing
is the situation of shortage of funds that forces a company to choose between projects.
CARDs (Certificates for Amortizing Revolving Debt)
are named the pass-through securities backed by automobile receivables.
Career-average plan
is called the pension plan offering a pension that depends on the employee’s average compensation during his or her years of membership.
Cash and carry
are the trading strategy which involves purchase of a security and the simultaneous sale of a future, with the balance being financed with a loan or repo.
Cash cows
a Boston Consulting Group term for business segments which have a high market share in low-growth product markets and thus throw off more cash flow than needed for reinvestment.
Cash deficient arrangement
is an arrangement whereby a project’s shareholders agree to provide the operating company with enough net working capital.
Centralization of authority
the tendency to restrict delegation of decision making in an organization structure, usually by holding authority at or near the top of the organization structure.
Chart of approval authorization
is named that technique by which the various authority delegation of an enterprise is charted in a matrix form showing the nature of the subjects over which authority exists and the organizational positions where decision making authority rests.
Chinese wall
the imaginary barrier separating investment banking and arbitrage functions within a financial intermediary.
Classified board
also called a staggered board. It is an antitakeover measure which divides a firm’s board of directors into several classes, only one of which is up for election in any given year, thus delaying effective transfer of control to a new owner in a takeover.
Clayton act
is a Federal antitrust law originally passed in 1914 and strengthened in 1950 by the Celler-Kefauver amendment. Section 7 gives the Federal Trade Commission (FTC) power to prohibit the acquisition of one company by another if adverse effects on competition would result, or if the FTC perceived a trend which might ultimately lead to decreased competition.
Clean-up merger
also called a take-out merger. The union of the acquired firm into the acquiring firm after the acquirer has obtained control.
Clientele effect
is a dividend theory which states that high-tax bracket shareholders will prefer to hold stock in firms with low dividend payout rates and low-tax bracket shareholders will prefer the stock of firms with high payouts.
Coercive tender offers
any tender offer which puts pressure on target shareholders to tender by offering a higher price to those who tender early.
Coinsurance effect
is named the combination of two firms whose cash flows are not perfectly correlated will result in cash flows of less variability for the merged firm, thus decreasing the risk to lenders to the firm and thereby increasing its debt capacity.
Collateral restraints
are specific agreements between the parties to a joint venture to limit competition between themselves in certain areas.
Collection float
are called those checks which are written by customers that have not been received, deposited and added to the company’s available balance.
Commitment principle
all logical planning should cover a period in the future necessary to foresee, through a series of actions, the fulfilment of commitments involved in a current decision.
Committee
is named a group of persons to whom, as a group, some matter is committed for purposes of information, advice, interchange of ideas or decision.
Communication
is called the transfer of information from one person to another with the information being understood by both the sender and the receiver.
Comparative management
is defined the study and analysis of management in different environments and in various countries.
Compensating balance
are called the non-interest-bearing demand deposits to compensate banks for bank loans or services.
Competitive bidding
means by which public utility holding companies are required to choose their underwriter.
Complementarity
is defined the strengths of one firm offset the weaknesses of another firm with which it combines. For example, one firm strong in marketing combines with one strong in research.
Completed staff work
is named a set of actions-tasks which include presentation of a clear recommendation to a superior based upon full consideration of a problem, clearance with persons importantly affected, suggestions about avoiding any difficulties involved, and, often, the preparation of necessary paperwork for implementing recommendations so that the receiving person can accept or reject the proposal without further study, long conferences or unnecessary work.
Composite strategies
a group of strategies in various related areas that a company or other enterprises may have.
Computer-aided design (CAD)
is named the submission of computer technology to design products much more quickly than with the traditional paper-and-pencil approach.
Computer-aided manufacturing (CAM)
is named the submission of computer technology to the manufacturing process. The goal for some companies is “computer-integrated manufacturing”, which computerizes the total manufacturing process.
Concentration
measures of the percentage of total industry sales accounted for by a specified number of firms, such as 4, 8 or 20.
Concentration banking
is named a system whereby customers make payments to a regional assembly center. The assembly center pays the funds into a regional bank account and surplus money is transferred to the company’s principal bank.
Concentric merger
a merger in which there is carry-over in specific management functions (i.e. marketing) or complementarity in relative strengths among specific management functions rather than carry-over/complementarities in only generic management functions (i.e. planning).
Conglomerate merger
is named a combination of unrelated firms; any combination that is not vertical or horizontal.
Conjectural variation
is named the reaction of rival firms as one firm, Firm A, restricts output or raises prices. Ranges from -1 to +1; a negative conjectural variation indicates competitive behavior i.e. Firm A’s action is offset by the reactions of competing rival firms.
Consistency requirement
is called an internal revenue provision (in Section 338) eliminating selectivity as to tax treatment of acquired assets in terms of stepped-up or carry-over asset basis. If stepped-up basis is elected for any subset of acquired firm assets, it is deemed to be an election from stepped-up asset basis for the entire target.
Consol
is named a perpetual bond issued by the British government. Occasionally used as a general term for perpetuity.
Contingency approach to leadership
is called a theory that leadership depends upon the group task situation and the degree to which the leader’s style, personality and approach fit the group.
Contingency management
is named the management which recognizes differences or possibilities in people, at countless times and in actual situations; also referred to as “situational management”; an approach that emphasizes that there can be no “one best way” in all situations.
Contingency model of leadership effectiveness
is called a leadership model developed by Fred Fiedler that postulates that a leader’s effectiveness depends on three variables:
1. How well a leader is accepted by subordinates,
2. The degree to which subordinates’ positions are routine and clearly spelled out in contrast to being vague and undefined,
3. The formal authority in the position occupied by a leader.
Contingency planning
is named the planning that considers possible future environments which are not expected to occur, but which may occur; if this possible future is widely different from that premised, alternate premises and plans are required.
Contingency strategies
are named that strategies which are developed to be used when unforeseen events or circumstances may take a selected strategy obsolete or unsuitable.
Contingent project
is a project that cannot be undertaken unless another project is also undertaken.
Contingent voting rights
are rights to vote in corporate elections which become exercisable upon the occurrence of an event. Examples: preferred stockholders may win the right to vote if preferred dividends are missed; convertible debt may be viewed as having voting rights contingent upon conversion.
Continuous compounding
when the interest rate is compounded continuously rather than at fixed interval.
Control of overall performance
is named the control which designed in order to measure the total performance of an enterprise, an integrated division of it, or a major program or project.
Control process
in managing the basic process involves:
1. establishing standards,
2. measuring performance against standards, and
3. correcting for undesirable deviations.
Controlling
is called the managerial function of measuring and correcting performance of activities of subordinates in order to assure that enterprise objectives and plans are being accomplished.
Convergence of interest hypothesis
predicts a positive relationship between proportion of management stock ownership and the market’s valuation of the firm’s assets.
Conversion price
for value of a convertible security divided by the number of shares into which it may be exchanged.
Convertible security
is called the bond or preferred stock that may be converted into another security at the holder’s option.
Cooperative system
is a system, as perceived by Chester Barnard, as one whose purpose is cooperation and which comprises physical, biological, social and psychological elements.
Coordination
achieving harmony of individual and group efforts toward the accomplishment of group purposes and objectives.
Corporate social responsibility
in a broad context it means that corporations consider seriously the impact of the enterprise’s actions on society.
Cost company arrangement
is the arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.
Cost effectiveness analysis
seeking the best ratio of benefits and costs; this means, for example, finding the minimum costly way of reaching an objective or getting the greatest value for given outlays.
Coupon
is named specifically, (1) a coupon attached to the certificate of a bearer bond that must be surrendered to collect interest payments; (2) more generally, interest payment on debt.
Credit scoring
is called a procedure for assigning scores to companies based on the risk of default.
Cross default clause
is a clause in a loan agreement stating that the company is in default if it fails to meet its obligation on any other debt issue.
Cumulative abnormal return
in event studies, the sum of daily abnormal returns over a period relative to the event.
Cumulative preferred stock
is a stock which takes priority over common stock regarding dividend payments. Dividends may not be paid on the common stock until all past dividends on the preferred stock have been paid.
Cumulative voting
instead of one vote per candidate selected, shareholders can vote (the number of shares they hold times the number of directors to be elected) for one candidate or divide the total votes among a desired number of candidates. Example: a shareholder has 100 shares; six directors are to be elected. With cumulative voting the shareholder has 600 votes to distribute among six candidates however he or she the shareholder has 600 votes to distribute among six candidates however he or she chooses.
