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additional paid-in capital

acquisition: Takeover of a firm by purchase of that firm`s common stock or assets.

additional paid-in capital: Difference between issue price and par value of stock. Also called capital surplus.

agency problems: Conflicts of interest between the firm`s owners and managers.

aging schedule: Classification of accounts receivable by time outstanding.

annual percentage rate (APR): Interest rate that is annualized using simple interest.

annuity: Equally spaced level stream of cash flows.

annuity due: Level stream of cash flows starting immediately.

annuity factor: Present value of an annuity of $1 per period.

authorized share capital: Maximum number of shares that the company is permitted to issue, as specified in the firm`s articles of incorporation.

availability float: Checks already deposited that have not yet been cleared.

average tax rate: Total taxes owed divided by total income.

balance sheet: Financial statement that shows the value of the firm`s assets and liabilities at a particular time.

balancing item: Variable that adjusts to maintain the consistency of a financial plan. Also called plug.

bankruptcy: The reorganization or liquidation of a firm that cannot pay its debts.

bear market: A market in which stock or bond prices are generally falling.

beta: Sensitivity of a stock`s return to the return on the market portfolio.

bond: Security that obligates the issuer to make specified payments to the bondholder.

book rate of return: Accounting income divided by book value. Also called accounting rate of return.

book value: Net worth of the firm`s assets or liabilities according to the balance sheet.

break-even analysis: Analysis of the level of sales at which the company breaks even.

bull market: A market in which stock or bond prices are generally rising.

call option: Right to buy an asset at a specified exercise price on or before the exercise date.

callable bond: Bond that may be repurchased by the issuer before maturity at specified call price.

capital asset pricing model (CAPM): Theory of the relationship between risk and return which states that the expected risk premium on any security equals its beta times the market risk premium.

capital budget: List of planned investment projects.

capital budgeting decision: Decision as to which real assets the firm should acquire.

capital markets: Markets for long-term financing.

capital rationing: Limit set on the amount of funds available for investment.

capital structure: Firm`s mix of long-term financing.

CAPM: See capital asset pricing model.

carrying costs: Costs of maintaining current assets, including opportunity cost of capital.

cash conversion cycle: Period between firm`s payment for materials and collection on its sales.

cash cow: Business that produces a lot of cash but few growth prospects.

cash dividend: Payment of cash by the firm to its shareholders.

CEO: Acronym for chief executive officer.

CFO: See chief financial officer.

chief financial officer (CFO): Officer who oversees the treasurer and controller and sets overall financial strategy.

collection policy: Procedures to collect and monitor receivables.

commercial paper: Short-term unsecured notes issued by firms.

common-size balance sheet: Balance sheet that presents items as a percentage of total assets.

common-size income statement: Income statement that presents items as a percentage of revenues.

common stock: Ownership shares in a publicly held corporation.

company cost of capital: Expected rate of return demanded by investors in a company, determined by the average risk of the

company`s assets and operations.

compound interest: Interest earned on interest.

concentration banking: System whereby customers make payments to a regional collection center which transfers funds to

a principal bank.

constant-growth dividend discount model: Version of the dividend discount model in which dividends grow at a constant rate.

controller: Officer responsible for budgeting, accounting, and auditing.

convertible bond: Bond that the holder may exchange for a specified number of shares.

corporation: Business owned by stockholders who are not personally liable for the business`s liabilities.