Glossary (6)

  Glossary

Puttable bond—bond with embedded put features allowing holders to sell the bonds back to the issuer at a specified price and time (see callable bond) 

Recapitalization—financial restructuring of a company whereby the company borrows against its assets and distributes the proceeds to shareholders 

Relative-performance orientation—the tendency to evaluate investment results by comparing one’s investment performance with that of the market as a whole 

Return—potential gain 

Rights offering—a financing technique whereby a company issues to its shareholders the preemptive right to purchase new stock (or bonds) in the company or occasionally in a subsidiary company 

Risk—amount and probability of potential loss 

Risk arbitrage—a specialized area involving investment in far-from-risk-free takeovers as well as spinoffs, liquidations, and other extraordinary corporate transactions 

Secured debt—debt backed by a security interest in specific assets 

Security—a marketable piece of paper representing the fractional ownership of a business or loan to a business or government entity 

Self-tender—an offer by a company to repurchase its own securities 

Senior-debt security—security with the highest priority in the hierarchy of a company’s capital structure 

Sensitivity analysis—a method of ascertaining the sensitivity of business value to small changes in the assumptions made by investors 

Share buybacks—corporate stock repurchases 

Shareholder’s (owner’s) equity—the residual after liabilities are subtracted from assets 

Short-selling—the sale of a borrowed security (see going long) 

Short-term relative-performance derby—manifestation of the tendency by institutional investors to measure investment results, not against an absolute standard, but against broad stock market indices resulting in an often speculative orientation 

Sinking fund—obligation of a company to periodically retire part of a bond issue prior to maturity 

Speculation—an asset having no underlying economics and throwing off no cash flow to the benefit of its owner (see investment) 

Spinoff—the distribution of the shares of a subsidiary company to the shareholders of the parent company 

Stock—a marketable piece of paper representing the fractional ownership of an underlying business 

Stock index Futures—contracts for the future delivery of a market basket of stocks 

Stock market proxy—estimate of the price at which a company, or its subsidiaries considered separately, would trade in the stock market 

Subordinated-debt security - security with a secondary priority in the hierarchy of a company’s capital structure 

Tactical-asset allocation—computer program designed to indicate whether stocks or bonds are a better buy 

Takeover multiple— multiple of earnings, cash flow, or revenues paid to acquire a company 

Tangible asset—an asset physically in existence