Definition of Institutional investors

Institutional investors

Organizations that invest, including insurance companies, depository institutions,
pension funds, investment companies, mutual funds, and endowment funds.

BARRA's performance analysis (PERFAN)

A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

Direct placement

Selling a new issue not by offering it for sale publicly, but by placing it with one of several
institutional investors.

Institutionalization

The gradual domination of financial markets by institutional investors, as opposed to
individual investors. This process has occurred throughout the industrialized world.

Upstairs market

A network of trading desks for the major brokerage firms and institutional investors that
communicate with each other by means of electronic display systems and telephones to facilitate block trades
and program trades.

Retail investors, individual investors

Small investors who commit capital for their personal account.

Institutionally Induced Unemployment

Unemployment due to institutional phenomena such as the degree of labor force unionization, the level of discrimination, and government policies such as unemployment insurance programs, minimum wages, or regulations on business.

Break-even analysis

An analysis of the level of sales at which a project would make zero profit.

Cluster analysis

A statistical technique that identifies clusters of stocks whose returns are highly correlated
within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings
such as growth, cyclical, stable and energy stocks.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Debt displacement

The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
forced to cut back on borrowing.

Direct estimate method

A method of cash budgeting based on detailed estimates of cash receipts and cash
disbursements category by category.

Direct lease

Lease in which the lessor purchases new equipment from the manufacturer and leases it to the
lessee.

Direct paper

Commercial paper sold directly by the issuer to investors.

Direct quote

For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.

Direct search market

Buyers and sellers seek each other directly and transact directly.

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Discriminant analysis

A statistical process that links the probability of default to a specified set of financial ratios.

Factor analysis

A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.

Foreign direct investment (FDI)

The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.

Fundamental analysis

Security analysis that seeks to detect misvalued securities by an analysis of the firm's
business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm.

Horizon analysis

An analysis of returns using total return to assess performance over some investment horizon.

Horizontal analysis

The process of dividing each expense item of a given year by the same expense item in
the base year. This allows for the exploration of changes in the relative importance of expense items over time
and the behavior of expense items as sales change.

Indirect quote

For foreign exchange, the number of units of a foreign currency needed to buy one U.S.$.

Mean-variance analysis

Evaluation of risky prospects based on the expected value and variance of possible outcomes.

Multiple-discriminant analysis (MDA)

Statistical technique for distinguishing between two groups on the
basis of their observed characteristics.

Performance attribution analysis

The decomposition of a money manager's performance results to explain
the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What
were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was
market timing statistically significant? And (4), Was security selection statistically significant?

Performance evaluation

The evaluation of a manager's performance which involves, first, determining
whether the money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated return (performance
attribution analysis).

Performance measurement

The calculation of the return realized by a money manager over some time interval.

Performance shares

Shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.

Placement

A bank depositing Eurodollars with (selling Eurodollars to) another bank is often said to be
making a placement.

Private placement

The sale of a bond or other security directly to a limited number of investors.

Pro forma capital structure analysis

A method of analyzing the impact of alternative capital structure
choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will
be able to use projected tax shield benefits fully.

Regression analysis

A statistical technique that can be used to estimate relationships between variables.

Replacement cost

Cost to replace a firm's assets.

Replacement cycle

The frequency with which an asset is replaced by an equivalent asset.

Replacement value

Current cost of replacing the firm's assets.

Replacement-chain problem

Idea that future replacement decisions must be taken into account in selecting
among projects.

Scenario analysis

The use of horizon analysis to project bond total returns under different reinvestment rates
and future market yields.

Sensitivity analysis

analysis of the effect on a project's profitability due to changes in sales, cost, and so on.

Stock replacement strategy

A strategy for enhancing a portfolio's return, employed when the futures
contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio and a stock portfolio.

Technical analysis

Security analysis that seeks to detect and interpret patterns in past security prices.

Vertical analysis

The process of dividing each expense item in the income statement of a given year by net
sales to identify expense items that rise faster or slower than a change in sales.

VERTICAL ANALYSIS

A financial analysis technique that relates key amounts on the income statement and balance sheet to a 100 percent or base figure for the present and previous year.
It shows the percentage change from last year to this year, making it easier to spot problems that require analysis.

Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.

Direct costs

Costs that are readily traceable to particular products or services.

Indirect costs

Costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.

Ratio analysis

A method of analysing financial reports to interpret trends and make comparisons by using ratios – two numbers, with one generally expressed as a percentage of the other.

Sensitivity analysis

An approach to understanding how changes in one variable of cost–volume–profit analysis are affected by changes in the other variables.

Variance analysis

A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.

Direct method

A method of preparing the operating section of the Statement of Cash Flows that uses the company’s actual cash inflows and cash outflows.

Direct write-off method

A method of adjusting accounts receivable to the amount that is expected to be collected by eliminating the account balances of specific nonpaying customers.

Indirect method

A method of preparing the operating section of the Statement of Cash Flows that does not use the company’s actual cash inflows and cash outflows, but instead arrives at the net cash flow by taking net income and adjusting it for noncash expenses and the changes from last year in the current assets and current liabilities.

Ratio analysis

A method of relating numbers from the various financial statements to one another in order to get meaningful information for comparison.

capital investment analysis

Refers to various techniques and procedures
used to determine or to analyze future returns from an investment
of capital in order to evaluate the capital recovery pattern and the
periodic earnings from the investment. The two basic tools for capital
investment analysis are (1) spreadsheet models (which I strongly prefer)
and (2) mathematical equations for calculating the present value or
internal rate of return of an investment. Mathematical methods suffer
from a lack of information that the decision maker ought to consider. A
spreadsheet model supplies all the needed information and has other
advantages as well.

Ratio Analysis

The process of using financial ratios, calculated from key accounts
found in a company's financial statements, to make judgements
concerning the finances and operations of the firm

Replacement Value

The amount necessary to duplicate a company's assets at current
market prices

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

correlation analysis

an analytical technique that uses statistical
measures of dispersion to reveal the strength of the
relationship between variables

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)

cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs

direct cost

a cost that is distinctly traceable to a particular cost object

direct costing

see variable costing

direct labor

the time spent by individuals who work specifically
on manufacturing a product or performing a service;
the cost of such time

direct material

a readily identifiable part of a product; the cost of such a part

direct method

a service department cost allocation approach
that assigns service department costs directly to revenueproducing
areas with only one set of intermediate cost
pools or allocations

incremental analysis

a process of evaluating changes that
focuses only on the factors that differ from one course of
action or decision to another

indirect cost

a cost that cannot be traced explicitly to a particular
cost object; a common cost

least squares regression analysis

a statistical technique that investigates the association between dependent and independent variables; it determines the line of "best fit" for a set of observations by minimizing the sum of the squares
of the vertical deviations between actual points and the
regression line; it can be used to determine the fixed and
variable portions of a mixed cost

Pareto analysis

a method of ranking the causes of variation
in a process according to the impact on an objective
Pareto inventory analysis an analysis that separates inventory
into three groups based on annual cost-to-volume usage

performance evaluation

the process of determining the degree
of success in accomplishing a task; it equates to both
effectiveness and efficiency

performance management system

a system reflecting the entire package of decisions regarding performance measurement and evaluation

replacement cost

an amount that a firm would pay to replace an asset or buy a new one that performs the same functions as an asset currently held

sensitivity analysis

a process of determining the amount of change that must occur in a variable before a different decision would be made

variance analysis

the process of categorizing the nature (favorable or unfavorable) of the differences between standard and actual costs and determining the reasons for those differences

Regression analysis

Statistical analysis techniques that quantify the
relationship between two or more variables. The intent is quantitative
prediction or forecasting, particularly using a small population to forecast the
behavior of a large population.

Direct cost

A cost that can be clearly associated with specific activities or products.

Direct costing

A costing methodology that only assigns direct labor and material costs
to a product, and which does not include any allocated indirect costs (which are all
charged off to the current period).

Direct labor

Labor that is specifically incurred to create a product.

Direct materials cost

The cost of all materials used in a cost object, such as finished goods.

Direct materials mix variance

The variance between the budgeted and actual mixes of
direct materials costs, both using the actual total quantity used. This variance isolates
the unit cost of each item, excluding all other variables.

Director

A member of a company’s Board of directors.

Indirect cost

A cost that is not directly associated with a single activity or event. Such
costs are frequently clumped into an overhead pool and allocated to various activities,
based on an allocation method that has a perceived or actual linkage between
the indirect cost and the activity.

Indirect labor

The cost of any labor that supports the production process, but which is
not directly involved in the active conversion of materials into finished products.

Pareto analysis

The 80:20 ratio that states that 20% of the variables included in an
analysis are responsible for 80% of the results. For example, 20% of all customers
are responsible for 80% of all customer service activity, or 20% of all inventory
items comprise 80% of the inventory value.

Replacement cost

The cost that would be incurred to replace an existing asset with one having the same utility.

break-even analysis

analysis of the level of sales at which the company breaks even.

credit analysis

Procedure to determine the likelihood a customer will pay its bills.

private placement

Sale of securities to a limited number of investors without a public offering.

scenario analysis

Project analysis given a particular combination of assumptions.

sensitivity analysis

analysis of the effects of changes in sales, costs, and so on, on project profitability.

simulation analysis

Estimation of the probabilities of different possible outcomes, e.g., from an investment project.

Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.

Indirect Taxes

Taxes paid by consumers when they buy goods and services. A sales tax is an example.

Direct Deposit

The direct transfer of payroll funds from the company bank account
directly into that of the employee, avoiding the use of a paycheck.

Direct-Method Format

A format for the operating section of the cash-flow statement that reports actual cash receipts and cash disbursements from operating activities.

Direct-Response Advertising

Advertising designed to elicit sales to customers who can be
shown to have responded specifically to the advertising in the past. Such costs can be capitalized
when persuasive historical evidence permits formulation of a reliable estimate of the future revenue
that can be obtained from incremental advertising expenditures.

Indirect-Method Format

A format for the operating section of the cash-flow statement that
presents the derivation of cash flow provided by operating activities. The format starts with net
income and adjusts for all nonoperating items and all noncash expenses and changes in working capital accounts.

Replacement Capital Expenditures

Capital expenditures required to replace productive
capacity consumed during a reporting period.

Failure analysis

The examination of failure incidents to identify components
with poor performance profiles.

Replacement parts

Parts requiring some modification before being substituted
for another part.

Replacement

This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
The most important policies to examine in detail are those which were issued in Canada prior to December 2, 1982. If you have a policy of this vintage with a significant cash surrender value, you may want to consider keeping it. It has special tax advantages over policies issued after December 2, 1982.
Basically, the difference is this. The cash surrender value of a pre December, 1982 policy can be converted to an annuity in accordance with the settlement options in the policy and as a result, the tax on any policy gain can be spread over the duration of the annuity. Since only the interest element of the annuity payment will be taxed, there will be less of a tax impact on the annuitant. Policies issued after December 2, 1982 which have their cash surrender value annuitized trigger a disposition and the annuitant must pay tax on the total policy gain immediately. If you still decide to replace existing coverage, don't cancel what you have until the new coverage has been issued.

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