Definition of Mangement's discussion

Mangement's discussion

A report from management to the shareholders that accompanies the firm's
financial statements in the annual report. This report explains the period's financial results and enables
management to discuss other ideas that may not be apparent in the financial statements in the annual report.

PPF (periodic perpetuity factor)

a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity.

Affirmative covenant

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

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.

Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.

Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

Annual report

Yearly record of a publicly held company's financial condition. It includes a description of the
firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all
shareholders. A more detailed version is called a 10-K.

Annualized gain

If stock X appreciates 1.5% in one month, the annualized gain for that sock over a twelve
month period is 12*1.5% = 18%. Compounded over the twelve month period, the gain is (1.015)^12 = 19.6%.

Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.

Auditor's report

A section of an annual report containing the auditor's opinion about the veracity of the
financial statements.

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).

Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.

Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Common stock/other equity

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

Compounding period

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

Confirmation

he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Corporate financial planning

financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.

Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.

Credit period

The length of time for which the customer is granted credit.

Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of
compounding.

Effective annual yield

annualized interest rate on a security computed using compound interest techniques.

Equivalent annual annuity

The equivalent amount per year for some number of years that has a present
value equal to a given amount.

Equivalent annual benefit

The equivalent annual annuity for the net present value of an investment project.

Equivalent annual cash flow

Annuity with the same net present value as the company's proposed investment.

Equivalent annual cost

The equivalent cost per year of owning an asset over its entire life.

Evaluation period

The time interval over which a money manager's performance is evaluated.

Financial analysts

Also called securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade shows, in order to write reports
recommending either purchasing, selling, or holding various stocks.

Financial assets

Claims on real assets.

Financial control

The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.

Financial distress

Events preceding and including bankruptcy, such as violation of loan contracts.

Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).

Financial engineering

Combining or dividing existing instruments to create new financial products.

Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.

Financial lease

Long-term, non-cancelable lease.

Financial leverage

Use of debt to increase the expected return on equity. financial leverage is measured by
the ratio of debt to debt plus equity.

Financial leverage clientele

A group of investors who have a preference for investing in firms that adhere to
a particular financial leverage policy.

Financial leverage ratios

Related: capitalization ratios.

Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.

Financial objectives

Objectives of a financial nature that the firm will strive to accomplish during the period
covered by its financial plan.

Financial plan

A financial blueprint for the financial future of a firm.

Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.

Financial press

That portion of the media devoted to reporting financial news.

Financial ratio

The result of dividing one financial statement item by another. Ratios help analysts interpret
financial statements by focussing on specific relationships.

Financial risk

The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.

Firm

Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
a synonym for company.

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Firm's net value of debt

Total firm value minus total firm debt.

Firm-specific risk

See:diversifiable risk or unsystematic risk.

Holding period

Length of time that an individual holds a security.

Holding period return

The rate of return over a given period.

Intrinsic value of a firm

The present value of a firm's expected future net cash flows discounted by the
required rate of return.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

Long-term financial plan

financial plan covering two or more years of future operations.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

Management/closely held shares

Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.

Management fee

An investment advisory fee charged by the financial advisor to a fund based on the fund's
average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

Money management

Related: Investment management.

Multiperiod immunization

A portfolio strategy in which a portfolio is created that will be capable of
satisfying more than one predetermined future liability regardless if interest rates change.

Neglected firm effect

The tendency of firms that are neglected by security analysts to outperform firms that
are the subject of considerable attention.

Net period

The period of time between the end of the discount period and the date payment is due.

Neutral period

In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not
start or end on either a Friday or the day before a holiday.

Nominal annual rate

An effective rate per period multiplied by the number of periods in a year.

Non-financial services

Include such things as freight, insurance, passenger services, and travel.

Notes to the financial statements

A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.

Other capital

In the balance of payments, other capital is a residual category that groups all the capital
transactions that have not been included in direct investment, portfolio investment, and reserves categories. It
is divided into long-term capital and short-term capital and, because of its residual status, can differ from
country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a
year or more like bank loans and mortgages. other short-term capital includes financial assets of less than a
year such as currency, deposits, and bills.

Other current assets

Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Other sources

Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free cash flow calculation.

Passive investment management

Buying a well-diversified portfolio to represent a broad-based market
index without attempting to search out mispriced securities.

Perfectly competitive financial markets

Markets in which no trader has the power to change the price of
goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.

Portfolio management

Related: Investment management

Pro forma financial statements

financial statements as adjusted to reflect a projected or planned transaction.

Reported factor

The pool factor as reported by the bond buyer for a given amortization period.

Reporting currency

The currency in which the parent firm prepares its own financial statements; that is, U.S.
dollars for a U.S. company.

Risk management

The process of identifying and evaluating risks and selecting and managing techniques to
adapt to risk exposures.

Shareholders' equity

This is a company's total assets minus total liabilities. A company's net worth is the
same thing.

Shareholders' letter

A section of an annual report where one can find jargon-free discussions by
management of successful and failed strategies which provides guidance for the probing of the rest of the
report.

Short-term financial plan

A financial plan that covers the coming fiscal year.

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the
stock market (consisting of both large and small firms).

Society for Worldwide Interbank Financial Telecommunications (SWIFT)

A dedicated computer network to support funds transfer messages internationally between over 900 member banks worldwide.

Stated annual interest rate

The interest rate expressed as a per annum percentage, by which interest
payment is determined.

Statement of Financial Accounting Standards No. 8

This is a currency translation standard previously in
use by U.S. accounting firms. See: Statement of Accounting Standards No. 52.

Statement of Financial Accounting Standards No. 52

This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: Statement of financial Accounting
Standards No. 8.

Subperiod return

The return of a portfolio over a shorter period of time than the evaluation period.

Surplus management

Related: asset management

T-period holding-period return

The percentage return over the T-year period an investment lasts.

Target firm

A firm that is the object of a takeover by another firm.

Top-down equity management style

A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.

Waiting period

Time during which the SEC studies a firm's registration statement. During This time the firm
may distribute a preliminary prospectus.

Working capital management

The management of current assets and current liabilities to maximize shortterm liquidity.

Workout period

Realignment period of a temporary misaligned yield relationship that sometimes occurs in
fixed income markets.

Accounting period

The period of time for which financial statements are produced – see also financial year.

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