Definition of Lynch & Co

Lynch & Co

Liquidating dividend
Payment by a firm to its owners from capital rather than from earnings.

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

DLOC (discount for lack of control)

an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

discount rate

the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.

fractional interest discount

the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.

QMDM (quantitative marketability discount model)

model for calculating DLOM for minority interests r the discount rate

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

Accounting exposure

The change in the value of a firm's foreign currency denominated accounts due to a
change in exchange rates.

Accounting earnings

Earnings of a firm as reported on its income statement.

Accounting insolvency

Total liabilities exceed total assets. A firm with a negative net worth is insolvent on
the books.

Accounting liquidity

The ease and quickness with which assets can be converted to cash.

Accounts payable

Money owed to suppliers.

Accounts receivable

Money owed by customers.

Accounts receivable turnover

The ratio of net credit sales to average accounts receivable, a measure of how
quickly customers pay their bills.

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.

Advance commitment

A promise to sell an asset before the seller has lined up purchase of the asset. This
seller can offset risk by purchasing a futures contract to fix the sales price.

Affirmative covenant

A bond covenant that specifies certain actions the firm must take.

Agency cost view

The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency costs

The incremental costs of having an agent make decisions for a principal.

All-in cost

Total costs, explicit and implicit.

Articles of incorporation

Legal document establishing a corporation and its structure and purpose.

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.

Autocorrelation

The correlation of a variable with itself over successive time intervals.

Average accounting return

The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.

Average age of accounts receivable

The weighted-average age of all of the firm's outstanding invoices.

Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

Average cost of capital

A firm's required payout to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Blue-chip company

Large and creditworthy company.

Bond covenant

A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.

Bullet contract

A guaranteed investment contract purchased with a single (one-shot) premium. Related:
Window contract.

Busted convertible

Related: Fixed-income equivalent.

Capital account

Net result of public and private international investment and lending activities.

Carring costs

costs that increase with increases in the level of investment in current assets.

Cash commodity

The actual physical commodity, as distinguished from a futures contract.

Cash conversion cycle

The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.

Cash cow

A company that pays out all earnings per share to stockholders as dividends. Or, a company or
division of a company that generates a steady and significant amount of free cash flow.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Cash flow coverage ratio

The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.

Cash flow per common share

Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.

Cash settlement contracts

Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.

Coefficient of determination

A measure of the goodness of fit of the relationship between the dependent and
independent variables in a regression analysis; for instance, the percentage of variation in the return of an
asset explained by the market portfolio return.

Coinsurance effect

Refers to the fact that the merger of two firms decreases the probability of default on
either firm's debt.

Collar

An upper and lower limit on the interest rate on a floating-rate note.

Collateral

Assets than can be repossessed if a borrower defaults.

Collateral trust bonds

A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. compare mortgage bond.

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

Collection float

The negative float that is created between the time when you deposit a check in your account
and the time when funds are made available.

Collection fractions

The percentage of a given month's sales collected during the month of sale and each
month following the month of sale.

Collection policy

Procedures followed by a firm in attempting to collect accounts receivables.

Collective wisdom

The combination of all of the individual opinions about a stock's or security's value.

Comanger

A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond
issue. comanagers may assist the lead manger bank in the pricing and issue of the instrument.

Combination matching

Also called horizon matching, a variation of multiperiod immunization and cash
flow matching in which a portfolio is created that is always duration matched and also cash-matched in the
first few years.

Combination strategy

A strategy in which a put and with the same strike price and expiration are either both
bought or both sold. Related: Straddle

Commercial draft

Demand for payment.

Commercial paper

Short-term unsecured promissory notes issued by a corporation. The maturity of
commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

Commercial risk

The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.

Commission

The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower
commissions than full service brokers. Full service brokers offer advice and usually have a full staff of
analysts who follow specific industries. Discount brokers simply execute a client's order -- and usually do not
offer an opinion on a stock. Also known as a round-turn.

Commission broker

A broker on the floor of an exchange acts as agent for a particular brokerage house and
who buys and sells stocks for the brokerage house on a commission basis.

Commission house

A firm which buys and sells future contracts for customer accounts. Related: futures
commission merchant, omnibus account.

Commitment

A trader is said to have a commitment when he assumes the obligation to accept or make
delivery on a futures contract. Related: Open interest

Commitment fee

A fee paid to a commercial bank in return for its legal commitment to lend funds that have
not yet been advanced.

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.

Commodities Exchange Center (CEC)

The location of five New York futures exchanges: commodity
Exchange, Inc. (coMEX), the New York Mercantile exchange (NYMEX), the New York cotton Exchange,
the coffee, Sugar and cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.

Commodity

A commodity is food, metal, or another physical substance that investors buy or sell, usually via
futures contracts.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock

These are securities that represent equity ownership in a company. common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.

Common stock market

The market for trading equities, not including preferred stock.

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.

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.

Company-specific risk

Related: Unsystematic risk

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.

Comparison universe

The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

Compensating balance

An excess balance that is left in a bank to provide indirect compensation for loans
extended or services provided.

Competence

Sufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to
achieve a certain goal or complete a project.

Competition

Intra- or intermarket rivalry between businesses trying to obtain a larger piece of the same
market share.

Competitive bidding

A securities offering process in which securities firms submit competing bids to the
issuer for the securities the issuer wishes to sell.

Competitive offering

An offering of securities through competitive bidding.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Complete portfolio

The entire portfolio, including risky and risk-free assets.

Completion bonding

Insurance that a construction contract will be successfully completed.

Completion risk

The risk that a project will not be brought into operation successfully.

Completion undertaking

An undertaking either (1) to complete a project such that it meets certain specified
performance criteria on or before a certain specified date or (2) to repay project debt if the completion test
cannot be met.

Composition

Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Compound interest

Interest paid on previously earned interest as well as on the principal.

Compound option

Option on an option.

Compounding

The process of accumulating the time value of money forward in time. For example, interest
earned in one period earns additional interest during each subsequent time period.

Compounding frequency

The number of compounding periods in a year. For example, quarterly
compounding has a compounding frequency of 4.

Compounding period

The length of the time period (for example, a quarter in the case of quarterly
compounding) that elapses before interest compounds.

Comprehensive due diligence investigation

The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.

Concentration account

A single centralized account into which funds collected at regional locations
(lockboxes) are transferred.

Concentration services

Movement of cash from different lockbox locations into a single concentration
account from which disbursements and investments are made.

Concession agreement

An understanding between a company and the host government that specifies the
rules under which the company can operate locally.

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