Index of technical terms in alternative investments

Accrual basis accounting An accounting convention in which revenue and most costs are recognized when the sale of the good or service occurs, rather than when the cash is received or when expenses are paid. Accrual basis accounting relies on the matching and recognition principles.

Accruals Amounts owed for salary, taxes, and other items, but not yet paid.

Alternative Fund(s) These funds managing investments for private or corporate investors taking advantage of a wide range of freedom in investment decision and technology. The specific purpose of Alternative Fund(s) is to achieve growth with little, no or even negative correlation to long markets like equities or bonds (hence alternative). There are several alternative asset classes such as life contracts, energy or commodities, risk management vehicles or cat bonds etc. Best contact your Brokerage Pool adviser before entering into an agreement.

Arbitrage means buying securities in one country, currency or market and selling in another to take advantage of price differentials.

Articles of Association are regulations for governing the rights and duties of the members of a company among themselves. Articles deal with internal matters such as general meetings, appointment of directors, issue and transfer of shares, dividends, accounts and audits.

Articulate Retained earnings on the balance sheet are equal to the previous year's retained earnings plus the current year's net income, less any dividends paid.

Asset Protection Trust A trust established offshore to protect settler's assets against those who may attempt to make claims against them: creditors, former spouses and dependents on death. Some offshore jurisdictions provide protection from creditor claims against persons who have guaranteed bank loans.

Asset/Sales ratio  Sometimes based on average assets:
[(Asset_t + asset_t-1)/2 /Sales_t. This ratio is often used as an indicator of efficiency of asset utilization.

Back to Back Loan A loan structure when "A" deposits a sum of money with a bank in country "X" on condition that a related branch, agency, edge corporation or bank located in country "Y" will lend an equivalent sum to "A" or a designee in country "Y".

Bankgeheimnis Laut Schweizer Gesetz ist das Weitergeben von Informationen über Bankkonten und Kunden an Dritte (sofern die Weitergabe nicht auf Anordnung eines Schweizer Gerichtes erfolgt) strafbar und wird mit einer Gefängnisstrafe belegt. Es sind keine Änderungen hierzu geplant und die Presseberichterstattung ist stark übertrieben, da die US Kunden Affaire offenlegte, dass nicht-regulierte und nicht im amerikanischen Markt zugelassene schweizer Produkte an amerikanische Staatsbürger vertrieben wurden.

Banking secrecy In Switzerland any distribution of information about bank accounts and clients to third parties (unless due to court decision) ist penalized and is subject to imprisonment. There are no changes planned and press coverage in regard of US citizen is exagerating since these were a direct result of ill-fated and non-compliant marketing of unregistered products of a Swiss bank to United States citizens.

Bare Trusts Also known as dry, formal, naked, passive or simple trusts. These are trusts where the trustees have no duties to perform other than to convey the trust property to the beneficiary(s) when called upon to do so.

Basis point 1/100 of a percent.

Bear An investor who has sold a security in the hope of buying it back at a lower price.

Bearer Share Certificate A negotiable share certificate made out in the name of the bearer and not in the name of a particular person or organization.

Bearer Stocks/Shares are Securities for which no register of ownership is kept by the company. Dividends are not received automatically from the company and must be claimed.

Beneficial Owner The actual or economic owner of an offshore company as distinct to the registered or nominal owner.

Best Efforts is a designation that a certain financial result is not guaranteed, but that a good faith effort will be made to provide the result that is represented.

Beta A measure of risk.  Beta measures a stock's market risk, which is the risk relevant to an investor.  Market risk is the amount of risk that a stock contributes to a well-diversified portfolio. 

BIS Bank for International Settlements, Basle, Switzerland. The bank's bank.

Blind Trust A trust in which the trustees are not allowed to provide any information to the beneficiaries about the administration of the assets of the trust.

Blocked Funds Term for "reserving" funds by one bank for the benefit of another bank. Blocking of funds is an often used banking procedure to ensure that the same funds are not used twice. Often more beneficial to an investor than a bank guarantee.

Blue Chip Term for the most prestigious industrial shares. Originally an American term derived from the color of the highest value poker chip.

Bond rating A measure of the creditworthiness of a bond.  For example, Moody's bond ratings range from AAA down to C and D.  AAA means very creditworthy and unlikely to default.  Bonds rated BB or below are defined as non-investment grade bonds,  commonly called junk bonds.

Bond spread The difference in yield between a corporate bond of a certain credit rating and a comparable maturity Treasury security.

Bonds are any interest-bearing or discounted government or corporate security that obligates the issuer to pay the holder of the bond a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. A secured bond is backed by collateral, whereas as an unsecured bond or debenture, is backed by the full faith and credit of the issuer, but not by any specified collateral.

Book value The value of an asset, a liability, or a company that is based solely upon the values reported in the company's financial statements.

Bridge/Mezzanine means financing for a company expecting to go public usually within six months to a year. Often bridge financing is structured so that it can be repaid from proceeds of a public underwriting.

Broker - An intermediary. An individual or organization in-between the person/organisation that controls the funds and the provider/trader. A broker often knows someone who knows somebody else who may provide program trading.

Bull - An investor who has bought a security in the hope to make a profit from rising prices.

Buyout - these are funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.

Cap An option-like contract for which the buyer pays a fee or premium, to obtain protection against a rise in a particular interest rate above a certain level. For example, an interest rate cap may cover a specified principal amount of a loan over a designated time period such as a calendar quarter. If the covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principal amount times one quarter.

Capital asset pricing model (CAPM) A model of investor required returns.  The required return to equity is the risk free rate plus beta multiplied by the market risk premium: r_s = r_RF + Beta (Market risk premium)

Capital requirements The amount of capital required to support a dollar of sales.

Capitalization Issue The process whereby money from a company's reserves is converted into capital and then distributed to shareholders as new shares, in proportion to their original holdings, also known as bonus or scrip issue.

Certiicate of Deposit (CD) is a deposit with a fixed time period and a fixed rate of interest.

Clearing System is a mechanism for calculation of mutual positions within a group of participants with a view to facilitating the settlement of their mutual obligations on a net basis.

Collar is the simultaneous purchase of a cap and the sale of a floor with the aim of maintaining interest rates within a defined range. The premium income from the sale of the floor reduces or offsets the cost of buying the cap.

Collateral Provider An entity which has the contractual ability to purchase bar instruments directly from the issuer. Also known as Master Collateral Commitment Holders.

Commission is the fee that a broker charges clients for dealing on their behalf. Without the broker funds usually also charge a commission - but they keep it for themselves or may cover large advertising cost for promoting direct sales of a fund.

Common stock Item on the balance sheet that shows how much stockholders have invested in the company by purchasing stock from the company.

Compound Yield is the total return on investment, consisting of the distribution (dividend, interest) and the capital gain or loss, in % of the investment amount.

Comprehensive financial statements A set of extremely detailed financial statements that includes practically all the entries that might be encountered in actual statements.

Condensed financial statements A set of focused financial statements that includes only the level of detail that is essential to a fundamental valuation of a firm. Individual items in the comprehensive statements are aggregated to produce the condensed statements.

Conditional S.W.I.F.T is a method which uses the Society for Worldwide Interbank Financial Telecommunications to transfer funds conditionally between banks subject to the performance of another party.

Constant growth formula A formula for the present value of a constantly growing stream of free cash flows.

Constant growth rate dividend policy Dividends are assumed to grow at a constant rate.

Contract Exit for Non-performance would be describing conditions in a financial agreement that enables the investor to take back his funds if the result represented is not achieved.

Contract Note The day that a transaction takes place, the broker sends the client a document detailing the transaction, including full title of the stock, price, consideration and stamp duty (if applicable).

Corporate value The sum of the value of a firm's operations and the value of its non-operating assets.  This is the total value of the firm.

Cost of capital The return the company must obtain on a certain source of capital, for example debt or equity, to satisfy those investors.

Cost of equity The return stockholders require on their investment in the stock.

Cost of goods sold (COGS) Expenses associated with production activities.

Credit Equivalent is the Value amount representing the credit risk exposure in off-balance sheet transactions. In the case of derivatives, credit equivalent value represents the potential cost at current market prices of replacing the contract's cash flows in the case of default by the counter-party.

Credit Risk is the risk that a counter party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss.

Currency Swaps are transactions involving the exchange of cash flows and principal in one currency for those in another with an agreement to reverse the principal swap at a future date.

Current Account A bank deposit that can be withdrawn by the depositor at any time.

Current assets Assets expected to be converted to cash within a year.  Current assets include inventory, accounts receivable, cash, and short-term investments.

Current Exposure Method Term used in the Basle Capital Accord to denote a method of assessing credit risk in off-balance sheet transactions, consisting of adding the market to market replacement cost of all contracts and an amount for potential credit exposure arising from future price- or volatility changes.

Current liabilities Liabilities expected to be paid off within a year.  Current liabilities include notes payable, the current portion of long-term debt, and accruals.

Current ratio Current assets/Current liabilities.

Debenture is a general debt obligation backed only by the integrity of the borrower, not by collateral. Depository Trust Corporation (DTC): A domestic custodial clearing facility owned by all of the major banks and securities firms which is monitored by various banking regulatory agencies and the Securities and Exchange commission.

Debtholder A person or financial institution who owns a bond issued by the company, or a bank that is owed money by the company.

Demand Deposit is a bank deposit that can be withdrawn by the depositor at any time.

Depository Trust Company (DTC) is a custodial clearing facility owned by the major banks and securities firms and monitored by various banking regulatory agencies and the Securities and Exchange Commission.

Depreciation The amount of an asset's purchase price that is taken as an expense during each reporting period over the life of the asset.

Discount When the market price of a newly issued security is lower than the issue price. If it is higher, the difference is called a premium.

Discretionary Trust The form of trust usually established offshore. The discretion's are vested in the trustee who can usually decide which of the beneficiaries is to benefit, when and to what extent. Discretion's are exercised under advice of, or suggestions from the settlor or protector.

Dividend is the part of a company's post-tax profits distributed to shareholders, usually expressed as an amount per share.

Dividends Money paid out to shareholders.

Domicile is the place of a person's permanent home and the means by which the person is connected with a certain system of law related to issues such as marriage, divorce, succession of estate and taxation.

Draft is a signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date.

EBIT Earnings before interest and taxes (EBIT). Net income less COGS and SGA.

EBITD Earnings before interest, taxes and depreciation.

Economic profit A generic name for economic value added (EVAä)

Economic value added (EVAä) The amount of economic value added to a company during the year.  Calculated as:  EVA = NOPAT - Operating capital (WACC).  Sometimes defined as: EVA = NOPAT - (Operating capital at the beginning of the year) (WACC).

EMS European Monetary Unit.

Equity is ownership interest in a corporation, represented by the shares of stock which are held by investors.

Equity Hedged strategies refer mainly to managers who are highly research oriented, long and short trading style or seeking out market niches in the equity market, actively trading the portfolio. Leverage and hedging techniques of managers differ significantly. In this category the market exposure is low and yet it is not a market neutral strategy.

Equity Related Loan Equity related loans are loans convertible into equity ownership or loans collateralized with equity positions

Equity Swaps This is a transaction that allows an investor to exchange the rate of return (or a component thereof) on an equity investment (an individual share, a basket or index) for the rate of return on another non-equity or equity investment.

Eurobond is a bond issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

EX the latin for 'without', the opposite of Cum. Used to indicate that the buyer is not entitled to participate in whatever forthcoming event is specified, for example, ex cap, ex dividend, ex rights.

Excess cash Cash in excess of the amount needed to support operations.

Exercise Price The fixed price at which an option holder has the right to buy, in the case of a call option, or to sell, in the case of a put option, the financial instrument covered by the option.

Exit Buyer is the buyer of a security arriving on the secondary (retail) market.

Expatriation is the removal of ones legal residence or citizenship from one country to another in anticipation of future restrictions on capital movements or to avoid estate taxes.

Extraordinary items Items on the income statement that are non-recurring, such as reorganization charges.

FED  the US Central Banking system, Federal Reserve, responsible for managing the US Dollar both within and outside the US, established in 1913.

FIBV World Federation of Stock Exchanges.

Fiduciary Account Often used to eliminate Swiss withholding tax on interest - it is an amount typically deposited with a Swiss Bank which will redeposit the sum with a third party bank outside Switzerland in its own name.

Financial inefficiency seeking Funds Funds may be trading senior life contracts, or following Long/Short or Short Bias strategies.

First Stage Financing provided to companies that have expended their initial capital and require funds, often to initiate commercial manufacturing and sales.

Fixed Deposit A bank deposit for a fixed period of time.

Fixed payout ratio A dividend policy in which dividends are a constant proportion of net income.

Flight Capital The movement of large sums of money from one country to another to escape political or economic turmoil, aggressive taxation or to seeking higher rates of interest.

Floor A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees.

Flotation The occasion on which a company's shares are offered on a market for the first time.

Foreign Currency Account An account maintained in a bank in another currency than the currency of the country in which the bank is located. Foreign currency accounts can be maintained for depositors by banks in the United States.

Forfaiting The process of purchasing at a discount registered bank "paper" which will mature in the future without recourse to any previous holder of the debt-generated bank paper.

Free cash flow (FCF) NOPAT minus required investment in operating capital.  FCF is the total amount of cash available for distribution to all the firm's investors-stockholders, bondholders, and preferred stockholders.

Fresh Cut Security arriving on the secondary (retail) market.

Frontier Market Funds Funds investing in markets that are expected to change to emerging markets over the next couple of years. Typically these markets do not have a regulated stock exchange and a closed number of regulated brokers are organizing the trades

Fully Paid Applied to new issues when the total amount payable in relation to the new shares has been paid to the company.

Fund domicile - It usually has a massive impact on your performance, legal position, the fund´s information duties, cost, minimum premium levels etc. whether a fund domicile is set up in country A or B. Contact BROKERAGE-POOL before entering into a fund agreement.

Fund of Funds (FoF) These funds hold a portfolio of other investment funds rather than investing directly in shares, bonds, or other securities. Different types of fund of funds invest in a different type of collective investment schemes.

Fund of Hedge Funds (FOHF) are funds investing in a minimum of two other hedge funds. Just as a hedge fund invests in a number of different securities, a fund of funds (FoF) holds shares of many different hedge funds. The purpose of FOHF is to achieve an even greater diversification than traditional hedge funds do.

Fundamental analysis Valuing stocks based on their expected future cash flows.

Fundamental value The value that results from discounting expected future cash flows at an appropriate cost of capital.  Analysts are not likely to agree on this value; it is an intrinsic value.

Futures Securities or goods bought or sold for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery.

Glass-Steagal Act A portion of the Banking Act of 1933 which prohibits banks from entering into the securities business and prohibits securities firms from accepting deposits. However, any security which is issued or guaranteed by any bank is not subject to the Securities Act of 1933. Therefore bank instruments, by virtue of being issued by a bank, are not considered a form of securities.

Global Macro, sometimes called ‘macro’, involves taking investment decisions on the basis of forecast macro economic data. This strategy has the ability to do well in good and bad times, but not so much in sideward moving markets. ·         Feedback approach, here the fund manager takes advantage of extreme momentum driven market swings. Usually associated with trend following.·         Model based approach, which is to compare implied with actual values to identify disequilibria.·         Information based, whereas the Manager is using a bottom up research to arrive at a macro view

Grantor Trust Under US tax law, income of the trust is taxed as the income of the grantor.

Gross margin Gross profit/Sales.

Gross profit Sales less cost of goods sold.

Grossing Up Calculation of the amount that would be required in the case of an investment subject to tax to equal the income from that investment as if it were not subject to tax.

Hard currency is a carry-over from the days when sound currency was freely convertible into "hard" metal, i.e. gold. It is used today to describe a currency which is sufficiently sound so that it is generally accepted internationally at face value.

Hedge Fund(s) These funds managing investments for private or coporate investors taking advantage of a wide range of freedom in investment decision and technology. In the US, such funds are unregulated if the number of investors does not exceed one hundred. The term “hedge fund” is now virtually meaningless given the variety of investment techniques used. Regulation of Hedgefunds can have both, advantages and disadvantages for adviser and client. Additionally there are several popular hedge fund domicilies with each different regulation so best contact your Brokerage Pool adviser before entering into an agreement.

Inefficiency trend seeking Funds are a group of funds doing convertible arbitrage, fixed income arbitrage or are event driven

Initial Margin is simply the minimum amount of money you must have in your account (at the close of trading) on the first day you establish a new position. Think of it as an initial requirement you must have to enter an exclusive club. In order to pass through the front door of the "Sugar Club", you have to have at least $700 in your pocket, and it can not be $700 that you have committed to anything else.

Insider Dealing is a criminal offense involving the purchase or sale of shares by someone who possesses inside information about a company's performance and prospects which is not yet available to the market as a whole, and which, if available, might affect the share price.

Insurance domicile usually has a massive impact on the client's  performance, legal position, the tax position, cost etc. A client should seek advice on the advantage of an insurance domicile being set up in country A or B. Contact BROKERAGE-POOL before entering into an insurance agreement.

Interbank Rate of Exchange The rate at which banks deal with each other in the market.

Interest coverage ratio Operating profit/Net interest expense.

Interest Rate Swap A transaction in which two counterparties exchange interest payment streams of differing character based on an underlying notional principal amount. The three main types are coupon swaps (fixed rate to floating rate in the same currency), basis swaps (one floating rate index to another floating rate index in the same currency) and cross-currency interest rate swaps (fixed rate in one currency to floating rate in another).

International Business Company (IBC) A term used to define a variety of offshore corporate structures. Common to all IBC's are the dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements. An increasing number of offshore jurisdictions are permitting the use of nominee shareholders, directors and officers.

Intrinsic value An estimate of value that is determined according to the particular views and beliefs of an individual investor or analyst.  See fundamental value.

Inventory turnover Inventory/Sales (sometimes defined as the average inventory during the year divided by the year's sales).

Investment banking firms act as underwriter or agent, serving as intermediary between an issuer of securities and the investing public. Investment bankers handle the distribution of blocks of previously issued securities, either through secondary offerings or through negotiations, maintain markets for securities already distributed, and act as finders in private placements of securities.

Investment Trust A company whose sole business consists of buying, selling and holding shares.

IPO / Initial Public Offering A company's first offering of stock to the public.

Laundering is the process of cleaning illicitly gained money so that it appears to others to have come from, or to be going to, a legitimate source.

Letter of Intent (LOI) is a document by which the investor states that he intends to enter into a High-Yield transaction.

Letter of Memorandum A document prepared by the founder of a fund providing guidance on how the fund management should exercise their activities

Letter of Wishes A document prepared by the settlor or grantor of a trust providing guidance on how trustees should exercise their discretion's.

Leverage Company debt expressed as a percentage of equity capital. High leverage means that debts are high in relation to assets. The equivalent UK term is gearing.

Limit In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price.

Limited Power of Attorney A legal document that empowers the trade manager to deal with the various parties of the transaction on behalf of the owner of the funds (the Principal). Transactions will not happen without this instrument.

Man of Straw Effectively a nominee settlor or grantor who creates an offshore trust but often has no further connection with the trust once it is created.

Managed Futures Funds are operated by Commodity Trading Advisors (CTAs), Most CTAs also charge a management fee per year, usually between 1% to 2% of the account size but there are also fees per trade or performance fees. Managed Futures are generally managed on the basis of a technical analysis, going long or short in futures contracts with underlying such as metals, grains, equity indexes and commodities of all kinds.

Margin Calls - these occur anytime your account balance falls below your total margin requirement. If you do not have enough money to satisfy your total margin requirement, you are placed on a Margin Call. Technically you have up to 5 days to satisfy a margin call, which can be done by increasing your account value or by liquidating some of your positions. Many brokerage firms, however, will insist that you correct a margin call immediately. Medium Term Note (MTN)

Market risk premium The return over and above the risk free rate that investors require for bearing market risk:  RP_M = expected return on market - risk free rate.

Market value added (MVA) Total market value of firm (i.e., market values of debt plus equity) minus total capital contributed to the firm.  The total contributed capital is the book value of debt plus the book value of common stock and retained earnings, as shown on the financial statements.

Market value The price at which the asset may be purchased or sold in the financial markets.

Matching principle The principle that irrespective of when cash payments for costs of producing goods are actually made, the costs cannot be incorporated into income until goods that were produced are sold.

Net Asset Value is the value of a company after all debts have been paid, expressed as an amount per share.

Net operating profit after taxes (NOPAT) Operating profit less the taxes due on operating profit.  In the simplest firm, this is EBIT (1-T) where T is the tax rate.

Net profit margin Net income/Sales.

Net working capital Current assets minus current liabilities.

Nominee Director A director whose function is passive in nature. The director receives a fee for lending his or her name to the organization. Nominee directors are subject to director responsibilities.

Non-linear model A model for projecting a balance sheet or income statement item in such a way that it is not a linear function of sales.

Offshore Financial Centers are a country or jurisdiction where an intentional attempt has been made to attract foreign business by deliberate government policy such as the enactment of secrecy laws and tax incentives.

Offshore Trust The quality that differentiates an offshore trust from an onshore trust is portability. The offshore trust can be transferred to additional jurisdictions to maintain confidentiality and to advantage desirable facets of the new jurisdictions laws.

Operating current assets Short-term assets used in operations.  Doesn't include excess cash or short-term investments.

Operating current liabilities Short-term liabilities used in operations.  Doesn't include notes payable.

Operating long-term capital Long-term capital used in operations, such as buildings, equipment, and land.

Operating margin EBIT/Sales.

Operating profit Profit from operations.  Usually EBIT.

Operating profitability NOPAT/Sales.  It is the contribution that operations make to the firm's overall profitability.

Options - in the form of Equity options eg. a class of options giving the purchaser the right but not the obligation to buy or sell an individual share, a basket of shares or an equity index at a predetermined price, on or before a fixed date.

Ordinary Shares - The most common form of shares. Holders receive dividends which vary in accordance with the profitability of the company and the recommendations of the directors. The holders of the ordinary shares are the owners of the company.

Par means equal to the nominal or face value of a security. A bond selling at par is worth the same dollar amount as it was issued for, or at which it will the redeemed at maturity.

Payout ratio Dividends/Net income.

Plant property and equipment (PP&E) Long-term assets owned by the company and used in operations or for administration.

Portfolio is a collection of securities held by an investor.

Portfolio Bond is a life insurance contract bundling securities which are more diverse than non-traditional long fund investments (usually equity and bond mutual funds) as found in unit linked insurance. Portfolio Bonds can only be found in a small number of jurisdictions in Europe. You best ask the Brokerage Pool to get a true overview.

Present value The value today of an amount of cash to be received in the future.

Pre-tax margin Profit before taxes/Sales.

Price to book ratio Market value of a company's stock (per share) divided by the book value of equity (per share).

Prime rate The rate that banks offer customers with high credit ratings.

Principal The initial amount borrowed in a loan.  Also called the face value.

Principal The party that controls the funds and seeks a secure high-yield investment.

Private Placement Insurance is a life insurance contract bundling securities of a small group of investors which is exempt from registration requirements. Often called Private Portfolio Bonds or Portfolio Bonds.

Private Placement The sale of securities to a small group of investors (generally 35 or fewer) which is exempt from SEC registration requirements. The investors execute an investment letter stating that the securities are being purchased for investment without a view towards distribution.

Private Portfolio Bond is a life insurance contract bundling securities of a small group of investors which is exempt from registration requirements. The private issue is that only a limited number of investors have agreed on the type of underlying investments in the insurance product. More information on Portfolio Bonds.

Private Trustee Company A company incorporated in certain offshore jurisdictions, such as Bermuda, to act as a trustee for a limited class or group of trusts. Private trustee companies are not permitted to offer trustee services to the public generally.

Proof of Funds (POF) A document by which the principal's bank states that the principal owns the funds required for the transaction. Usually, proof of funds can also be delivered in the form of a recent bank-, security- or custody statement.

Protector is a person appointed by the settlor/grantor of a trust, who has limited powers to control the trustee. The protector usually has the right to change trustees.

Purpose Trust A trust created for an express purpose without any individually ascertained or ascertainable beneficiaries. A purpose trust is typically used in circumstances where the trust is of philanthropic nature.

Quick ratio (Current assets - inventory)/Current liabilities.

Rating agency An organization, such as Standard and Poor's, Fitch, and Moody's, that analyzes the creditworthiness of companies.

Receivables turnover Receivables/Sales.

Recognition principle A rule employed to determine when to report revenue and costs. Most companies recognize revenue and most costs when the good or service is shipped or delivered, rather than when the cash from sale is received or when production expenses are paid.

Residual dividend Dividends are set so that assets are equal to liabilities plus owners equity.

Retained earnings Item on the balance sheet that shows how much stockholders have contributed to the company as the company reinvests (i.e., retains) earnings rather than pays earnings out dividends.

Return on invested capital (ROIC) NOPAT/Beginning capital.  A measure of how well the company is doing financially with the assets it uses. Sometimes calculated as NOPAT/Capital if used for performance measures.

Reverse engineer Use of a valuation model to deduce what combinations of assumptions about the firm's operating performance are consistent with the current market price of the firm's stock.

Rights Issue An invitation to existing shareholders to acquire additional shares in the company in proportion to the number of shares they already own - usually at a preferential price.

Risk free rate The rate of return on long-term Treasury securities.

Safekeeping Receipt A document issued by a bank which obligates the bank to unconditionally hold certain funds separate from other bank assets and return them when requested by the depositor. In this way, the funds are not an asset of the bank nor are they directly or indirectly subject to any of the bank's other obligations or debts.

Second Stage Working capital for the initial expansion of a company that is producing and shipping and has growing accounts receivable and inventories. Although the company has clearly made progress, it may not yet be showing a profit.

Securities General name for shares and bonds of all types. Shares produce a variable dividend and bonds a fixed interest.

Seed money is a relatively small amount of capital provided to an investor or entrepreneur, usually to prove a concept. It may involve product development, but rarely involves initial marketing.

Selling, general, and administrative expenses (SGA) Expenses associated with corporate overhead, advertising, and administration-mostly expenses not directly associated with production.

Sensitivity analysis Using a valuation model to see how variation of the assumptions about operating or nonoperating performance  affects the value of the firm.

Settlement Exchanging money or securities for securities.

Short-run projection period The period during which projections of operating performance are based on specific plans and circumstances of the firm.

SLC is the Stand-by Letter of Credit. A financial guarantee or performance bond issued by a bank on behalf of a customer and regulated by the ICC-500 rules.

Special situation Funds These may take advantage of distressed markets or unforeseen occasions like whether or catastrophic events or the protection/insurance against these events.

Spread The difference in yields between two assets.  For example, a bond spread is the difference between the yield on a particular bond and the yield on a Treasury security of the same maturity.

Steady-state period The period of a firm's existence during which the forces of competition have eroded the ability of the firm to generate extraordinary returns to its investors.  When this period is reached, the growth and profitability performance of the firm will merge with that of other firms in its industry, and ultimately with the performance of the economy at large.

Stock repurchases A firm buys back its own stock in order to distribute cash to its shareholders.

Sub Account (Segregated account) Where an entity has established a relationship with a bank that includes the bank acting on the entity's behalf a sub account is opened to hold funds in the name of the entity's client. The funds can only the used according to the terms of a written agreement that is given to and approved by the bank. The funds are not considered an asset of the entity or the bank, and are not subject to the debts of either the entity or the bank if a safekeeping receipt is issued by the bank.

Third Stage Funds provided for the major growth of a company whose sales volume is increasing and that is beginning to break even or turn profitable. These funds are typically for plant expansion, marketing and working capital development of an improved product.

Total Margin for your futures account is simply all the margin requirements of all your positions added together. As long as your account balance is greater than this total, you have adequate margin.

Total market value Market value of debt plus the market value of equity.

Tranche is a specified part of a larger transaction. Each purchase and resale of a separate block of bank instruments in a trading group is known as a tranche. For example, a contract may the signed to buy 10 billion dollars worth of bank paper with an initial tranche (or purchase) of 500 million dollars.

Underwriting (bank) An investment banking firm acting as underwriter sells securities from the issuing corporation to the public. A group of firms may from a syndicate to pool the risk and assure successful distribution of the issue. There are two types of underwriting arrangements: best efforts and firm commitment. With best efforts, the underwriters have the option to buy and authority to sell securities, or if unsuccessful, may cancel the issue and forgo any fees. This arrangement is more common with speculative securities and with new companies. With a firm commitment, the underwriters purchase outright the securities being offered by the issuer.

Underwriting (insurance) An insurer will underwrite the insurance policy you wish to be protected under. The risk insured will be defined in the terms & conditions of the insurance policy. In order to identify the best rate of premium in the interest of both contract parties underwriters will access the risk typically by use of an underwriting questionnaire. They may also use individual questions. It is in your interest to consult BROKERAGE-POOL first before entering into a request for proposal.

Value driver Something that is an important factor in the determination a company's profitability and value.  For example, sales growth or gross margin.

Value of equity The value of the common stock, sometimes defined as the projected value of the common stock as predicted by the valuation model (intrinsic value), and sometimes, as the market value of the common stock.

Value of operations (V_Op) The present value of the free cash flows when discounted at the weighted average cost of capital. 

Venture Capital is the process by which investors fund early stage, more risk oriented business endeavors. A venture capital funding arrangement will typically entail relinquishing some level of ownership and control of the business. Offsetting the high risk the investor takes is the promise of high return on the investment. The investment is usually in the form of stock or an instrument which can be converted into stock at some future date. As the business matures, an initial public offering may take place, or the business merged or sold, or other sources of capital found. Any of these would occur with the intention of buying out the venture capitalists. Venture capitalists typically expect a 20-50% annual return on their investment at the time they are brought out. Venture capitalists typically invest in high growth companies with the potential to generate revenues of $20MM in any one company, but typical investments range from between $500,000 and $5MM. Management experience is a major consideration in evaluating financing prospects.

Warrant is a special kind of option given by the company to holders of a particular security giving them the right to subscribe for future issues, either of the same or of some other security.

Weighted average cost of capital (WACC) The after-tax costs of capital of all of the various sources of financing, weighted by their relative market values:  if there is only debt and equity, then this is WACC = w_dr_d(1-T) + w_s­­r_s. When discussing bank trading programs, a standard form of debenture with a term of ten years and a annual interest rate of 7.5 %. Also known as Medium Term Debenture (MTD).

White Knight is a company which rescues another which is in financial difficulty, especially one which saves a company from an unwelcome takeover bid.

Yield is the return earned on an investment taking into account the annual income and its present capital value. There are a number of different types of yield and in some cases different methods of calculating each type.

Yield The rate of return that an investor would realize on a bond held to maturity.