Definition of Book
Book
A banker or trader's positions.
Book
cash A firm's cash balance as reported in its financial statements. Also called ledger cash.
Related Terms:
The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.
The managing underwriter for a new issue. The book runner maintains the book of securities sold.
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A
company's book value might be more or less than its market value.
The ratio of stockholder equity to the average number of common shares. book value
per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation
(and not necessarily market valuation).
The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the securities they own as well as those they
are holding for customers. In the case of other securities where a book-entry has developed, engraved
securities do exist somewhere in quite a few cases. These securities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.
A record of unexecuted limit orders that is maintained by the specialist. These orders are
treated equally with other orders in terms of priority of execution.
Market price of a share divided by book value per share.
A bank runs a matched book when the distribution of maturities of its assets and liabilities are equal.
The current book value of an asset or liability; that is, its original book value net of any
accounting adjustments such as depreciation.
See: unmatched book.
Compares a stock's market value to the value of total assets less total liabilities (book
value). Determined by dividing current stock price by common stockholder equity per share (book value),
adjusted for stock splits. Also called Market-to-book.
See: unmatched book.
Set of books kept by firm management for its annual report that follows Financial
Accounting Standards Board rules. The tax books follow IRS tax rules.
Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.
If the average maturity of a bank's liabilities is less than that of its assets, it is said to be
running an unmatched book. The term is commonly used with the Euromarket. Term also refers to the
condition when a firm enters into OTC derivatives contracts and chooses to hedge that risk by not making
trades in the opposite direction to another financial intermediary. In this case, the firm with an unmatched
book hedges its net market risk with futures and options, usually.
Related expressions: open book and short book.
BOOK VALUE
An asset’s cost basis minus accumulated depreciation.
BOOK VALUE OF COMMON STOCK
The theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. book value equals:
(Stockholders’ equity) / (Common stock shares outstanding)
book value and book value per share
Generally speaking, these terms
refer to the balance sheet value of an asset (or less often of a liability) or
the balance sheet value of owners’ equity per share. Either term emphasizes
that the amount recorded in the accounts or on the books of a business
is the value being used. The total of the amounts reported for
owners’ equity in its balance sheet is divided by the number of stock
shares of a corporation to determine the book value per share of its capital
stock.
Book Value
The value of an asset as carried on the balance sheet of a
company. In reference to the value of a company, it is the net worth
(equity) of the company.
Book Value per Share
The book value of a company divided by the number of shares
outstanding
Market to Book Ratio
Measure of the book value of a company on a per share basis. It is
calculated by dividing the book value of the company by the
number of common shares outstanding.
open-book management
a philosophy about increasing a firm’s performance by involving all workers and by ensuring
that all workers have access to operational and financial
information necessary to achieve performance improvements
Book inventory
The amount of money invested in inventory, as per a company’s
accounting records. It is comprised of the beginning inventory balance, plus the
cost of any receipts, less the cost of sold or scrapped inventory. It may be significantly
different from the actual on-hand inventory, if the two are not periodically
reconciled.
Book value
An asset’s original cost, less any depreciation that has been subsequently incurred.
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.
Book Income
Pretax income reported on the income statement.
Book Returns
book yield is the investment income earned in a year on a portfolio of assets purchased over a number of years and at different interest rates, divided by the book value of those assets.
Accounting insolvency
Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
the books.
Attribute bias
The tendency of stocks preferred by the dividend discount model to share certain equity
attributes such as low price-earnings ratios, high dividend yield, high book-value ratio or membership in a
particular industry sector.
Average accounting return
The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.
Bearer bond
Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.
Carrying value
book value.
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.
Contract month
The month in which futures contracts may be satisfied by making or accepting a delivery.
Also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and
P/E ratios and higher dividend yields, seeing value where others do not.
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.
Disbursement float
A decrease in book cash but no immediate change in bank cash, generated by checks
written by the firm.
Ledger cash
A firm's cash balance as reported in its financial statements. Also called book cash.
Legal capital
Value at which a company's shares are recorded in its books.
Long-term assets
Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.
Mark-to-market
The process whereby the book value or collateral value of a security is adjusted to reflect
current market value.
MBS Depository
A book-entry depository for GNMA securities. The depository was initially operated by
MBSCC and is currently in the process of becoming a separately incorporated, participant-owned, limitedpurpose
trust company organized under the State of New York Banking Law.
Pooling of interests
An accounting method for reporting acquisitions accomplished through the use of equity.
The combined assets of the merged entity are consolidated using book value, as opposed to the purchase
method, which uses market value. The merging entities' financial results are combined as though the two
entities have always been a single entity.
Return on investment (ROI)
Generally, book income as a proportion of net book value.
Seykota, Ed
Ed Seykota is interviewed by Jack Schwager in Schwager's book, Market Wizards. Seykota was
graduated from MIT in the early 1970s, and went on to develop the first commercially sold commodities trading system. Seykota went into business for himself, and in the years 1974-1989, managed to grow a
$5,000 trading account to over $15 million dollars. Mr. Seykota is a trading genius who has been able to
identify robust patterns of price action that repeat themselves in different markets. His quantitative and
systematic approach to trading has been an inspiration for many. Mr. Seykota is also a genius when it comes
to understanding human psychology.
Shares
Certificates or book entries representing ownership in a corporation or similar entity
Stockholder equity
Balance sheet item that includes the book value of ownership in the corporation. It
includes capital stock, paid in surplus, and retained earnings.
Unilateral transfers
Items in the current account of the balance of payments of a country's accounting books
that corresponds to gifts from foreigners or pension payments to foreign residents who once worked in the
country whose balance of payments is being considered.
Value manager
A manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at
or in excess of that value. Often a value stock is one with a low price to book value ratio.
Write-down
Decreasing the book value of an asset if its book value is overstated compared to current market values.
Declining balance
An accelerated depreciation method that calculates depreciation each year by applying a fixed rate to the asset’s book (cost–accumulated depreciation) value. Depreciation stops when the asset’s book value reaches its salvage value.
General ledger
A book that contains all the accounts of the company and the balances of those accounts.
accounting equation
An equation that reflects the two-sided nature of a
business entity, assets on the one side and the sources of assets on the
other side (assets = liabilities + owners’ equity). The assets of a business
entity are subject to two types of claims that arise from its two basic
sources of capital—liabilities and owners’ equity. The accounting equation
is the foundation for double-entry bookkeeping, which uses a
scheme for recording changes in these basic types of accounts as either
debits or credits such that the total of accounts with debit balances
equals the total of accounts with credit balances. The accounting equation
also serves as the framework for the statement of financial condition,
or balance sheet, which is one of the three fundamental financial
statements reported by a business.
accumulated depreciation
A contra, or offset, account that is coupled
with the property, plant, and equipment asset account in which the original
costs of the long-term operating assets of a business are recorded.
The accumulated depreciation contra account accumulates the amount of
depreciation expense that is recorded period by period. So the balance in
this account is the cumulative amount of depreciation that has been
recorded since the assets were acquired. The balance in the accumulated
depreciation account is deducted from the original cost of the assets
recorded in the property, plant, and equipment asset account. The
remainder, called the book value of the assets, is the amount included on
the asset side of a business.
balance sheet
A term often used instead of the more formal and correct
term—statement of financial condition. This financial statement summarizes
the assets, liabilities, and owners’ equity sources of a business at a
given moment in time. It is prepared at the end of each profit period and
whenever else it is needed. It is one of the three primary financial statements
of a business, the other two being the income statement and the
statement of cash flows. The values reported in the balance sheet are the
amounts used to determine book value per share of capital stock. Also,
the book value of an asset is the amount reported in a business’s most
recent balance sheet.
income statement
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
mark to market
Refers to the accounting method that records increases
and decreases in assets based on changes in their market values. For
example, mutual funds revalue their securities portfolios every day based
on closing prices on the New York Stock Exchange and Nasdaq. Generally
speaking, however, businesses do not use the mark-to-market method
to write up the value of their assets. A business, for instance, does not
revalue its fixed assets (buildings, machines, equipment, etc.) at the end
of each period—even though the replacement values of these assets fluctuate
over time. Having made this general comment, I should mention
that accounts receivable are written down to recognize bad debts, and a
business’s inventories asset account is written down to recognize stolen
and damaged goods as well as products that will be sold below cost. If
certain of a business’s long-term operating assets become impaired and
will not have productive utility in the future consistent with their book
values, then the assets are written off or written down, which can result
in recording a large extraordinary loss in the period.
market capitalization, or market cap
Current market value per share of
capital stock multiplied by the total number of capital stock shares outstanding
of a publicly owned business. This value often differs widely from
the book value of owners’ equity reported in a business’s balance sheet.
net worth
Generally refers to the book value of owners’ equity as reported
in a business’s balance sheet. If liabilities are subtracted from assets, the
accounting equation becomes: assets - liabilities = owners’ equity. In this
version of the accounting equation, owners’ equity equals net worth, or
the amount of assets after deducting the liabilities of the business.
owners' equity
Refers to the capital invested in a business by its shareowners
plus the profit earned by the business that has not been distributed
to its shareowners, which is called retained earnings. Owners’
equity is one of the two basic sources of capital for a business, the other
being borrowed money, or debt. The book value, or value reported in a
balance sheet for owners’ equity, is not the market value of the business.
Rather, the balance sheet value reflects the historical amounts of capital
invested in the business by the owners over the years plus the accumulation
of yearly profits that were not paid out to owners.
sunk cost
A cost that has been paid and cannot be undone or reversed.
Once the cost has been paid, it is irretrievable, like water over the dam
or spilled milk. Usually, the term refers to the recorded value of an asset
that has lost its value in the operating activities of a business. Examples
are the costs of products in inventory that cannot be sold and fixed
assets that are no longer usable. The book value of these assets should
be written off to expense. These costs should be disregarded in making
decisions about what to do with the assets (except that the income tax
effects of disposing of the assets should be taken into account).
Basic Earnings Power Ratio
Percentage of earnings relative to total assets; indication of how
effectively assets are used to generate earnings. It is calculated by
dividing earnings before interest and taxes by the book value of all
assets.
Debt Ratio
The percentage of debt that is used in the total capitalization of a
company. It is calculated by dividing the total book value of the
debt by the book value of all assets.
Fixed Assets Turnover Ratio
A measure of the utilization of a company's fixed assets to
generate sales. It is calculated by dividing the sales for the period
by the book value of the net fixed assets.
Inventory Turnover Ratio
Provides a measure of how often a company's inventory is sold or
"turned over" during a period. It is calculated by dividing the sales
figure for the period by the book value of the inventory at the end of
the period.
Quick Ratio
A measure of how easily a company can use its most liquid current
assets to meet its current liabilities. It is calculated by subtracting
the book value of the inventories from the total book value of
current assets and dividing the result by the total book value of
current liabilities. Also known as acid-test ratio.
Return on Common Equity Ratio
A measure of the percentage return earned on the value of the
common equity invested in the company. It is calculated by
dividing the net income available for distribution to shareholders
by the book value of the common equity.
Return on Total Assets Ratio
A measure of the percentage return earned on the value of the
assets in the company. It is calculated by dividing the net income
available for distribution to shareholders by the book value of all
assets.
Total Asset Turnover Ratio
A measure of the utilization of all of a company's assets to
generate sales. It is calculated by dividing the sales figure for the
period by the book value of the net fixed assets.
Ito process
Statistical assumptions about the behavior of security prices. For
details, see the book by Hull listed in the “Bibliography”.
Bank reconciliation
A comparison between the cash position recorded on a company’s
books and the position noted on the records of its bank, usually resulting in some
changes to the book balance to account for transactions that are recorded on the
bank’s records but not the company’s.
Capitalize
A purchase that has been recorded on the company books as an asset. The
grounds for capitalizing an item include a purchase price that is higher than a minimum
limit (known as the capitalization limit) and an estimated lifetime for the item
that will exceed one year.
Entry
The act of recording an accounting transaction in the accounting books.
Gain
The profit earned on the sale of an asset, computed by subtracting its book value
from the revenue received from its sale.
Goodwill
The excess of the price paid to buy another company over the book value of
its assets and the increase in cost of its fixed assets to fair market value.
Ledger
A book or database in which accounting transactions are stored and summarized.
Shrinkage
The excess of inventory listed in the accounting books of record, but which
no longer exists in the actual inventory. Its disappearance may be due to theft, damage,
miscounting, or evaporation.
market value added
Market value of equity minus book value.
net worth
book value of common stockholders’ equity plus preferred stock.
Exchange Rate, Nominal
The price of one currency in terms of another, in this book defined as number of units of foreign currency per dollar.
Keynesianism
The school of macroeconomic thought based on the ideas of John Maynard Keynes as published in his 1936 book The General Theory of Employment, Interest, and Money. A Keynesian believes the economy is inherently unstable and requires active government intervention to achieve stability.
Deferred Tax Asset
Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.
Deferred Tax Liability
Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.
Effective Tax Rate
The total tax provision divided by pretax book income from continuing
operations.
Fraudulent Financial Reporting
Intentional misstatements or omissions of amounts or disclosures
in financial statements done to deceive financial statement users. The term is used interchangeably
with accounting irregularities. A technical difference exists in that with fraud, it
must be shown that a reader of financial statements that contain intentional and material misstatements
must have used those financial statements to his or her detriment. In this book, accounting
practices are not alleged to be fraudulent until done so by an administrative, civil, or
criminal proceeding, such as that of the Securities and Exchange Commission, or a court.
Impairment Loss
A special, nonrecurring charge taken to write down an asset with an overstated
book value. Generally an asset is considered to be value-impaired when its book value
exceeds the future net cash flows expected to be received from its use. An impairment write-down
reduces an overstated book value to fair value.
Income Tax Provision
The expense deduction from pretax book income reported on the
income statement. It consists of both current income tax expense and deferred income tax
expense. The terms income tax expense and income tax provision are used interchangeably.
Inventory Shrinkage
A shortfall between inventory based on actual physical counts and inventory
based on book records. This shortfall may be due to such factors as theft, breakage, loss, or
poor recordkeeping.
Percentage Depletion
A deduction against taxable income permitted companies in the natural
resources industry equal to a percentage of gross income generated by a property. The deduction
is permitted even if it results cumulatively in more than 100% of the cost of the property being
deducted over time. Thus, percentage depletion can create a permanent difference between book
income and taxable income.
Temporary Difference
A difference between pretax book income and taxable income that
results from the recognition of revenues or gains and expenses or losses in different periods in the
determination of pretax book and taxable income. Temporary differences give rise to either
deferred tax assets or liabilities.
Inventory adjustment
A transaction used to adjust the book balance of an inventory
record to the amount actually on hand.
Reconciling inventory
The process of comparing book to actual inventory balances,
and adjusting for the difference in the book records.
Record accuracy
The variance between book and on-hand quantities, expressed
as a percentage.
Generally Accepted Accounting Principles (GAAP)
GAAP is the term used to describe the underlying rules basis on which financial statements are normally prepared. This is codified in the Handbook of The Canadian Institute of Chartered Accountants.
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