Definition of Fair-and-equitable test

Fair-and-equitable test

A set of requirements for a plan of reorganization to be approved by the bankruptcy court.

Acid-test ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
items to current liabilities.

Asset-coverage test

A bond indenture restriction that permits additional borrowing on if the ratio of assets to
debt does not fall below a specified minimum.

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.

Fair game

An investment prospect that has a zero risk premium.

Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.

Fair price

The equilibrium price for futures contracts. Also called the theoretical futures price, which equals
the spot price continuously compounded at the cost of carry rate for some time interval.

Fair price provision

See:appraisal rights.

Interest coverage test

A debt limitation that prohibits the issuance of additional long-term debt if the issuer's
interest coverage would, as a result of the issue, fall below some specified minimum.

Proxy contest

A battle for the control of a firm in which the dissident group seeks, from the firm's other
shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors.
Also called proxy fight.

Tick-test rules

SEC-imposed restrictions on when a short sale may be executed, intended to prevent investors
from destabilizing the price of a stock when the market price is falling. A short sale can be made only when either
1) the sale price of the particular stock is higher than the last trade price (referred to as an uptick trade) or
2) if there is no change in the last trade price of the particular stock, the previous trade price must be
higher than the trade price that preceded it (referred to as a zero uptick).

ACID-TEST RATIO

A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
(Cash + Accounts receivable + Marketable securities) / (Current liabilities)

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

Acid-test Ratio

See quick ratio

Fair market value

The price that an asset or service will fetch on the open market.

proxy contest

Takeover attempt in which outsiders compete with management for shareholders’ votes. Also called proxy fight.

Laissez-Faire

A policy of minimum government intervention in the operation of the economy.

ABC Test

A test used to determine the status of an employee under a state unemployment
insurance program, where a person is a contractor only if there is
an Absence of control by the company, Business conducted by the employee is
substantially different from that of the company, and the person Customarily
works independently from the company.

Fair Labor Standards Act of 1938

A federal Act creating standards of overtime
pay, minimum wages, and payroll recordkeeping.

Fair Value

The amount at which an asset could be purchased or sold or a liability incurred or
settled in a current transaction between willing and informed parties. When a quoted market price
is available, fair value is the product of the number of units in question times that market price.
That product also is referred to as the item's market value. For traded securities, the terms fair
value and market value are synonymous. When no quoted market price is available for the item
in question, fair value must be estimated.

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.

Intestate

This means dying without a will, in which case the provincial laws of the province in which the death occurred apply to the manner in which assets will be distributed. In other words, if you don't write your own will, the government will do it for you after your death and it may not be as you would have wished.

Fair Market Value

The highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact.

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