Definition of CLA
CLA
The Canada Life Assurance Company.
Related Terms:
Categories of assets, such as stocks, bonds, real estate and foreign securities.
A reduction in the likelihood one or more of the firm's claimants will be fully repaid,
including time value of money considerations.
A party to an explicit or implicit contract.
A claim that can be made only if one or more specified outcomes occur.
The date on which a firm's directors meet and announce the date and amount of the next
dividend.
An auditor's statement disclaiming any opinion regarding the company's financial
condition.
With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.
Also called a residual claim, a claim to a share of earnings after debt obligation have been
satisfied.
A clause in a contract providing for increases or decreases in inflation based on
fluctuations in the cost of living, production costs, and so forth.
claims that can be bought and sold in financial markets, such as those of stockholders and
bondholders.
Such a clause on a Euro loan permits the borrower to switch from one currency to
another currency on a rollover date.
A bond covenant that requires the borrower to grant lenders a lien equivalent to any
liens that may be granted in the future to any other currently unsecured lenders.
claims that cannot be easily bought and sold in the financial markets, such as those of
the government and litigants in lawsuits.
1) One class of CMO that carries the most stable cash flows and the
lowest prepayement risk of any class of CMO. Because of that stable cash flow, it is considered the least risky CMO.
2) A CMO bond class that stipulates cash-flow contributions to a sinking fund. With the PAC,
principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined
payment schedule, with prior claim to the cash flows before other CMO classes. Similarly, cash flows
received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The
prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience.
A claim for the right to return or the right to demand the return of a security that has been
previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process.
Residual claim
Related: equity claim
Risk classes
Groups of projects that have approximately the same amount of risk.
Subordination clause
A provision in a bond indenture that restricts the issuer's future borrowing by
subordinating the new lender's claims on the firm to those of the existing bond holders.
Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.
Declaration date
The date on which the board of directors has declared a dividend.
functional classification
a separation of costs into groups based on the similar reason for their incurrence; it includes
cost of goods sold and detailed selling and administrative
expenses
Classical Macroeconomics
The school of macroeconomic thought prior to the rise of Keynesianism.
New Classicals
Economists who, like classical economists, believe that wages and prices are sufficiently flexible to solve the unemployment problem without help from government policy.
Unclaimed Pay
Net pay not collected by an employee, which is typically transferred
to the local state government after a mandated interval has passed from
the date of payment.
Preferred Stock Stock that has a claim on assets and dividends of a corporation that are prior
to that of common stock. Preferred stock typically does not carry the right to vote.
ABC inventory classification
A method for dividing inventory into classifications,
either by transaction volume or cost. Typically, category A includes that 20% of
inventory involving 60% of all costs or transactions, while category B includes
the next 20% of inventory involving 20% of all costs or transactions, and category
C includes the remaining 60% of inventory involving 20% of all costs or
transactions.
Incontestable Clause
This clause in regular life insurance policy provides for voiding the contract of insurance for up to two years from the date of issue of the coverage if the life insured has failed to disclose important information or if there has been a misrepresentation of a material fact which would have prevented the coverage from being issued in the first place. After the end of two years from issue, a misrepresentation of smoking habits or age can still void or change the policy.
Suicide Clause
Generally, a suicide clause in a regular life insurance policy provides for voiding the contract of insurance if the life insured commits suicide within two years of the date of issue of the coverage.
Acceleration Clause
clause causing repayment of a debt, if specified events occur or are not met.
Claim
Request for payment of benefits under the terms of an insurance policy.
Claimant
Person or party making request for payment of benefits under the terms of an insurance policy.
Risk class
A group of insureds who present similar risk to the insurance company. Risk classes include - standard, preferred, nonsmoker, substandard, uninsurable.
American shares
Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign
issuer. The certificates represent claims to foreign equities.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.
Best-interests-of-creditors test
The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.
Bundling, unbundling
A trend allowing creation of securities either by combining primitive and derivative
securities into one composite hybrid or by separating returns on an asset into classes.
Collateralized mortgage obligation (CMO)
A security backed by a pool of pass-throughs , structured so that
there are several classes of bondholders with varying maturities, called tranches. The principal payments from
the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in
the prospectus.
Related: mortgage pass-through security
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.
Cramdown
The ability of the bankruptcy court to confirm a plan of reorganization over the objections of
some classes of creditors.
Debenture bond
An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.
Downgrade
A classic negative change in ratings for a stock, and or other rated security.
Ex-dividend
This literally means "without dividend." The buyer of shares when they are quoted ex-dividend
is not entitled to receive a declared dividend.
Federal credit agencies
Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.
Financial assets
claims on real assets.
Floating lien
General lien against a company's assets or against a particular class of assets.
Formula basis
A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.
Free on board
Implies that distributive services like transport and handling performed on goods up to the
customs frontier of the economy from which the goods are classed as merchandise.
Futures contract
Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.
Intangible asset
A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual
property, patents, copyrights, and trademarks are examples of intangible assets.
Investment grade bonds
A bond that is assigned a rating in the top four categories by commercial credit
rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys'
classifies investment grade bonds as Ba or higher. Related: High-yield bond.
Junior debt (subordinate debt)
Debt whose holders have a claim on the firm's assets only after senior
debtholder's claims have been satisfied. Subordinated debt.
Lock-out
With PAC bond CMO classes, the period before the PAC sinking fund becomes effective. With
multifamily loans, the period of time during which prepayment is prohibited.
Market sectors
The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.
Option
Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a
given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be
worth more than the price set by the option (the strike price), plus the price they paid for the option itself.
Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of
a class of securities called derivatives, so named because these securities derive their value from the worth of
an underlying investment.
Payment date
The date on which each shareholder of record will be sent a check for the declared dividend.
Preferred stock
A security that shows ownership in a corporation and gives the holder a claim, prior to the
claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most
preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar
amount or as a percentage of par value. This stock does not usually carry voting rights. The stock shares
characteristics of both common stock and debt.
Price-specie-flow mechanism
Adjustment mechanism under the classical gold standard whereby
disturbances in the price level in one country would be wholly or partly offset by a countervailing flow of
specie (gold coins) that would act to equalize prices across countries and automatically bring international
payments back in balance.
Record date
1) Date by which a shareholder must officially own shares in order to be entitled to a dividend.
For example, a firm might declare a dividend on Nov 1, payable Dec 1 to holders of record Nov 15. Once a
trade is executed an investor becomes the "owner of record" on settlement, which currently takes 5 business
days for securities, and one business day for mutual funds. Stocks trade ex-dividend the fourth day before the
record date, since the seller will still be the owner of record and is thus entitled to the dividend.
2) The date that determines who is entitled to payment of principal and interest due to be paid on a security. The record
date for most MBSs is the last day of the month, however the last day on which they may be presented for the
transfer is the last business day of the month. The record date for CMOs and asset-backed securities vary with each issue.
Recourse
Term describing a type of loan. If a loan is with recourse, the lender has a general claim against the
parent company if the collateral is insufficient to repay the debt.
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.
Reserve currency
A foreign currency held by a central bank or monetary authority for the purposes of
exchange intervention and the settlement of inter-governmental claims.
Residual assets
Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.
Risk premium approach
The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.
Scale enhancing
Describes a project that is in the same risk class as the whole firm.
Secured debt
Debt that, in the event of default, has first claim on specified assets.
Series
Options: All option contracts of the same class that also have the same unit of trade, expiration date,
and exercise price. Stocks: shares which have common characteristics, such as rights to ownership and voting,
dividends, par value, etc. In the case of many foreign shares, one series may be owned only by citizens of the
country in which the stock is registered.
SIC
Abbreviation for Standard Industrial classification. Each 4-digit code represents a unique business activity.
Side effects Effects of a proposed project on other parts of the firm.
Stand-alone principle
Investment principle that states a firm should accept or reject a project by comparing it
with securities in the same risk class.
Stockholder's equity
The residual claims that stockholders have against a firm's assets, calculated by
subtracting total liabilities from total assets.
Stratified equity indexing
A method of constructing a replicating portfolio in which the stocks in the index
are classified into stratum, and each stratum is represented in the portfolio.
Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and
often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage
bond, collateral trust bonds.
Subordinated debt
Debt over which senior debt takes priority. In the event of bankruptcy, subordinated
debtholders receive payment only after senior debt claims are paid in full.
Tax-timing option
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and
defer the capital gains tax.
12B-1 fees
The percent of a mutual fund's assets used to defray marketing and distribution expenses. The
amount of the fee is stated in the fund's prospectus. The SEC has recently proposed that 12B-1 fees in excess
of 0.25% be classed as a load. A true " no load" fund has neither a sales charge nor 12b-1 fee.
Type
The classification of an option contract as either a put or a call.
Underlying security
Options: the security subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying security to IBM options. Depository receipts: The class,
series and number of the foreign shares represented by the depository receipt.
Underwriting income
For an insurance company, the difference between the premiums earned and the costs
of settling claims.
Unemployment rate
The ratio of the number of people classified as unemployed to the total labor force.
Warrant
A security entitling the holder to buy a proportionate amount of stock at some specified future date
at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the
price of which reflects the value of the underlying stock. Warrants are issued by corporations and often used
as a "sweetener" bundled with another class of security to enhance the marketability of the latter. Warrants are
like call options, but with much longer time spans -- sometimes years. In addition, warrants are offered by
corporations whereas exchange traded call options are not issued by firms.
Z bond
Also known as an accrual bond or accretion bond; a bond on which interest accretes interest but is not
paid currently to the i nvestor but rather is accrued, with accrual added to the principal balance of the Z and
becoming payable upon satisfaction of all prior bond classes.
STOCK
Certificates that signify ownership in a corporation. A share of stock represents a claim on a portion of the company’s assets.
Payment date
The date established for the payment of a declared dividend.
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.
activity based costing (ABC)
A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.
basic earnings per share (EPS)
This important ratio equals the net
income for a period (usually one year) divided by the number capital
stock shares issued by a business corporation. This ratio is so important
for publicly owned business corporations that it is included in the daily
stock trading tables published by the Wall Street Journal, the New York
Times, and other major newspapers. Despite being a rather straightforward
concept, there are several technical problems in calculating
earnings per share. Actually, two EPS ratios are needed for many businesses—
basic EPS, which uses the actual number of capital shares outstanding,
and diluted EPS, which takes into account additional shares of
stock that may be issued for stock options granted by a business and
other stock shares that a business is obligated to issue in the future.
Also, many businesses report not one but two net income figures—one
before extraordinary gains and losses were recorded in the period and a
second after deducting these nonrecurring gains and losses. Many business
corporations issue more than one class of capital stock, which
makes the calculation of their earnings per share even more complicated.
capital stock
Ownership shares issued by a business corporation. A business
corporation may issue more than one class of capital stock shares.
One class may give voting privileges in the election of the directors of the
corporation while the other class does not. One class (called preferred
stock) may entitle a certain amount of dividends per share before cash
dividends can be paid on the other class (usually called common stock).
Stock shares may have a minimum value at which they have to be issued
(called the par value), or stock shares can be issued for any amount
(called no-par stock). Stock shares may be traded on public markets such
as the New York Stock Exchange or over the Nasdaq network. There are
about 10,000 stocks traded on public markets (although estimates vary
on this number). In this regard, I find it very interesting that there are
more than 8,000 mutual funds that invest in stocks.
cash flow
An obvious but at the same time elusive term that refers to cash
inflows and outflows during a period. But the specific sources and uses
of cash flows are not clear in this general term. The statement of cash
flows, which is one of the three primary financial statements of a business,
classifies cash flows into three types: those from operating activities
(sales and expenses, or profit-making operations), those from
investing activities, and those from financing activities. Sometimes the
term cash flow is used as shorthand for cash flow from profit (i.e., cash
flow from operating activities).
statement of cash flows
One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the business’s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income
statement.
current assets
Current refers to cash and those assets that will be turned
into cash in the short run. Five types of assets are classified as current:
cash, short-term marketable investments, accounts receivable, inventories,
and prepaid expenses—and they are generally listed in this order in
the balance sheet.
equity
Refers to one of the two basic sources of capital for a business, the
other being debt (borrowed money). Most often, it is called owners’
equity because it refers to the capital used by a business that “belongs”
to the ownership interests in the business. Owners’ equity arises from
two quite distinct sources: capital invested by the owners in the business
and profit (net income) earned by the business that is not distributed to
its owners (called retained earnings). Owners’ equity in our highly developed
and sophisticated economic and legal system can be very complex—
involving stock options, financial derivatives of all kinds, different
classes of stock, convertible debt, and so on.
financing activities
One of the three classes of cash flows reported in the
statement of cash flows. This class includes borrowing money and paying
debt, raising money from shareowners and the return of money to
them, and dividends paid from profit.
investing activities
One of the three classes of cash flows reported in the
statement of cash flows. This class includes capital expenditures for
replacing and expanding the fixed assets of a business, proceeds from
disposals of its old fixed assets, and other long-term investment activities
of a business.
stockholders' equity, statement of changes in
Although often considered
a financial statement, this is more in the nature of a supporting schedule
that summarizes in one place various changes in the owners’ equity
accounts of a business during the period—including the issuance and
retirement of capital stock shares, cash dividends, and other transactions
affecting owners’ equity. This statement (schedule) is very helpful
when a business has more than one class of stock shares outstanding
and when a variety of events occurred during the year that changed its
owners’ equity accounts.
Common Stock
A financial security that represents an ownership claim on the
assets and earnings of a company. This claim is valid after the
claims of the debt providers and preferred stockholders have been
satisfied.
Preferred Stock
A type of equity security where holders have a claim on the assets
and earnings of a company after the debt providers but before the
holders of common stock. Preferred stock generally pays a fixed
or floating rate dividend each year.
activity analysis
the process of detailing the various repetitive actions that are performed in making a product or
providing a service, classifying them as value-added and
non-value-added, and devising ways of minimizing or eliminating
non-value-added activities
process benchmarking
benchmarking that focuses on practices and how the best-in-class companies achieved their results
product life cycle
a model depicting the stages through
which a product class (not necessarily each product) passes
aging schedule
classification of accounts receivable by time outstanding.
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