Definition of Per Diem

Per Diem

A fixed rate paid to employees traveling on behalf of a business,
which substitutes for reimbursement of exact expenses incurred.

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.

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).

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.

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).

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.

Book value per share

The ratio of stockholder equity to the average number of common shares. Book value
per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation
(and not necessarily market valuation).

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net
income.

Cash flow per common share

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

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.

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.

Compounding period

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

Credit period

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

Direct paper

Commercial paper sold directly by the issuer to investors.

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.

Dividends per share

Amount of cash paid to shareholders expressed as dollars per share.

Dividends per share

Dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.

Earnings per share (EPS)

EPS, as it is called, is a company's profit divided by its number of outstanding
shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would
be $1 per share. The company often uses a weighted average of shares outstanding over the reporting term.

Euro-commercial paper

Short-term notes with maturities up to 360 days that are issued by companies in
international money markets.

Evaluation period

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

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

FHA prepayment experience

The percentage of loans in a pool of mortgages outstanding at the origination
anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.

Fully diluted earnings per shares

Earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.

Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.

Growing perpetuity

A constant stream of cash flows without end that is expected to rise indefinitely.

Holding period

Length of time that an individual holds a security.

Holding period return

The rate of return over a given period.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

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.

Net operating losses

Losses that a firm can take advantage of to reduce taxes.

Net operating margin

The ratio of net operating income to net sales.

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.

Open-market operation

Purchase or sale of government securities by the monetary authorities to increase or
decrease the domestic money supply.

Open-market purchase operation

A systematic program of repurchasing shares of stock in market
transactions at current market prices, in competition with other prospective investors.

Operating cash flow

Earnings before depreciation minus taxes. It measures the cash generated from
operations, not counting capital spending or working capital requirements.

Operating cycle

The average time intervening between the acquisition of materials or services and the final
cash realization from those acquisitions.

Operating exposure

Degree to which exchange rate changes, in combination with price changes, will alter a
company's future operating cash flows.

Operating profit margin

The ratio of operating margin to net sales.

Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.

Operating leverage

Fixed operating costs, so-called because they accentuate variations in profits.

Operating risk

The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
created by operating leverage. Also called business risk.

Operationally efficient market

Also called an internally efficient market, one in which investors can obtain
transactions services that reflect the true costs associated with furnishing those services.

Overperform

When a security is expected to appreciate at a rate faster than the overall market.

Paper

Money market instruments, commercial paper and other.

Paper gain (loss)

Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.

Perfect capital market

A market in which there are never any arbitrage opportunities.

Perfect competition

An idealized market environment in which every market participant is too small to affect
the market price by acting on its own.

Perfect hedge

A financial result in which the profit and loss from the underlying asset and the hedge position
are equal.

Perfect market view (of capital structure)

Analysis of a firm's capital structure decision, which shows the
irrelevance of capital structure in a perfect capital market.

Perfect market view (of dividend policy)

Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.

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.

Perfected first lien

A first lien that is duly recorded with the cognizant governmental body so that the lender
will be able to act on it should the borrower default.

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.

Perpetual warrants

Warrants that have no expiration date.

Perpetuity

A constant stream of identical cash flows without end, such as a British consol.

Perquisites

personal benefits, including direct benefits, such as the use of a firm car or expense account for
personal business, and indirect benefits, such as up-to-date office décor.

Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

Personal trust

An interest in an asset held by a trustee for the benefit of another person.

Preferred equity redemption stock (PERC)

Preferred stock that converts automatically into equity at a
stated date. A limit is placed on the value of the shares the investor receives.

Price persistence

Related: Relative strength

Property rights

Rights of individuals and companies to own and utilize property as they see fit and to receive
the stream of income that their property generates.

Separation property

The property that portfolio choice can be separated into two independent tasks: 1)
determination of the optimal risky portfolio, which is a purely technical problem, and 2) the personal choice
of the best mix of the risky portfolio and the risk-free asset.

Set of contracts perspective

View of corporation as a set of contracting relationships, among individuals
who have conflicting objectives, such as shareholders or managers. The corporation is a legal contrivance that
serves as the nexus for the contracting relationships.

Short-run operating activities

Events and decisions concerning the short-term finance of a firm, such as
how much inventory to order and whether to offer cash terms or credit terms to customers.

Subperiod return

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

Supermajority

Provision in a company's charter requiring a majority of, say, 80% of shareholders to approve
certain changes, such as a merger.

T-period holding-period return

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

Trading paper

CDs purchased by accounts that are likely to resell them. The term is commonly used in the Euromarket.

Underperform

When a security is expected to appreciate at a slower rate than the overall market.

Waiting period

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

Workout period

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

CASH FLOWS FROM OPERATIONS

A section on the cash-flow Stockholders’ equity statement that shows how much cash came into a company and how much went out during the normal course of business.

Earnings per share of common stock

How much profit a company made on each share of common stock this year.

OPERATING EXPENSES

The total amount that was spent to run a company this year.

PROPERTY AND EQUIPMENT

Assets such as land, buildings, machinery, and equipment that the business will use for several
years to make the product or provide the service that it sells. They are shown at the cost a company paid to buy or build them minus the amount they’ve depreciated since they were bought or built. (Except for land, which is not depreciated.)

Accounting period

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

Operating profit

The profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation.

Period costs

The costs that relate to a period of time.

Periodic inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold only at the end of the period.

Permanent accounts

The accounts found on the Balance Sheet; these account balances are carried forward for the lifetime of the company.

Perpetual inventory system

An inventory system in which the balance in the Inventory account is adjusted for the units sold each time a sale is made.

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.

book value and book value per share

Generally speaking, these terms
refer to the balance sheet value of an asset (or less often of a liability) or
the balance sheet value of owners’ equity per share. Either term emphasizes
that the amount recorded in the accounts or on the books of a business
is the value being used. The total of the amounts reported for
owners’ equity in its balance sheet is divided by the number of stock
shares of a corporation to determine the book value per share of its capital
stock.

cash flow from operating activities, or cash flow from profit

This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.

diluted earnings per share (EPS)

This measure of earnings per share
recognizes additional stock shares that may be issued in the future for
stock options and as may be required by other contracts a business has
entered into, such as convertible features in its debt securities and preferred
stock. Both basic earnings per share and, if applicable, diluted
earnings per share are reported by publicly owned business corporations.
Often the two EPS figures are not far apart, but in some cases the
gap is significant. Privately owned businesses do not have to report earnings
per share. See also basic earnings per share.

earnings per share (EPS)

See basic earnings per share and diluted earnings per share.

operating activities

Includes all the sales and expense activities of a business.
But the term is very broad and inclusive; it is used to embrace all
types of activities engaged in by profit-motivated entities toward the
objective of earning profit. A bank, for instance, earns net income not
from sales revenue but from loaning money on which it receives interest
income. Making loans is the main revenue operating activity of banks.

operating cash flow

See cash flow from operating activities.

operating leverage

A relatively small percent increase or decrease in
sales volume that causes a much larger percent increase or decrease in
profit because fixed expenses do not change with small changes in sales
volume. Sales volume changes have a lever effect on profit. This effect
should be called sales volume leverage, but in practice it is called operating
leverage.
operating liabilities
The short-term liabilities generated by the operating
(profit-making) activities of a business. Most businesses have three types
of operating liabilities: accounts payable from inventory purchases and
from incurring expenses, accrued expenses payable for unpaid expenses,
and income tax payable. These short-term liabilities of a business are
non-interest-bearing, although if not paid on time a business may be
assessed a late-payment penalty that is in the nature of an interest
charge.

operating profit

See earnings before interest and income tax (EBIT).

property, plant, and equipment

This label is generally used in financial
reports to describe the long-term assets of a business, which include
land, buildings, machinery, equipment, tools, vehicles, computers, furniture
and fixtures, and other tangible long-lived resources that are not
held for sale but are used in the operations of a business. The less formal
name for these assets is fixed assets, which see.

Average Collection Period

Average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period.

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