Definition of Purchase and sale

Purchase and sale

A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Horizontal spread

The simultaneous purchase and sale of two options that differ only in their exercise date.

P&S (P and S)

purchase and sale statement. A statement provided by the broker showing change in the customer's net
ledger balance after the offset of a previously established position(s).

Reoffering yield

In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds
to investors.

Riskless arbitrage

The simultaneous purchase and sale of the same asset to yield a profit.

Spot trade

The purchase and sale of a foreign currency, commodity, or other item for immediate delivery.

Spread

1) The gap between bid and ask prices of a stock or other security.
2) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months.
Also known as a straddle.
3) Difference between the price at which an underwriter buys an issue from a firm
and the price at which the underwriter sells it to the public.
4) The price an issuer pays above a benchmark fixed-income yield to borrow money.

Underwriting

Acting as the underwriter in a purchase and sale.

Underwriting syndicate

A group of investment banks that work together to sell new security offerings to
investors. The underwriting syndicate is led by the lead underwriter. See also: lead underwriter.
Underwritten offering
A purchase and sale.

Vertical spread

Simultaneous purchase and sale of two options that differ only in their exercise price. See:
horizontal spread.

Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.

Best-efforts sale

A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Closing purchase

A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.

Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Limitation on merger, consolidation, or sale

A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Minimum purchases

For mutual funds, the amount required to open a new account (Minimum Initial
purchase) or to deposit into an existing account (Minimum Additional purchase). These minimums may be
lowered for buyers participating in an automatic purchase plan

Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.

Negotiated sale

Situation in which the terms of an offering are determined by negotiation between the issuer
and the underwriter rather than through competitive bidding by underwriting groups.

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.

Opening purchase

A transaction in which the purchaser's intention is to create or increase a long position in
a given series of options.

Opening sale

A transaction in which the seller's intention is to create or increase a short position in a given
series of options.

Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.

Purchase

To buy, to be long, to have an ownership position.

Purchase accounting

Method of accounting for a merger in which the acquirer is treated as having purchased
the assets and assumed liabilities of the acquiree, which are all written up or down to their respective fair
market values, the difference between the purchase price and the net assets acquired being attributed to goodwill.

Purchase agreement

As used in connection with project financing, an agreement to purchase a specific
amount of project output per period.

Purchase fund

Resembles a sinking fund except that money is used only to purchase bonds if they are selling
below their par value.

Purchase method

Accounting for an acquisition using market value for the consolidation of the two entities'
net assets on the balance sheet. Generally, depreciation/amortization will increase for this method compared
with pooling and will result in lower net income.

Repurchase agreement

An agreement with a commitment by the seller (dealer) to buy a security back from
the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a
collateralized short-term loan, where the collateral may be a Treasury security, money market instrument,
federal agency security, or mortgage-backed security. From the purchaser (customer) perspective, the deal is
reported as a reverse Repo.

Repurchase of stock

Device to pay cash to firm's shareholders that provides more preferable tax treatment
for shareholders than dividends. Treasury stock is the name given to previously issued stock that has been
repurchased by the firm. A repurchase is achieved through either a dutch auction, open market, or tender offer.

Sale and lease-back

sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.

Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.

Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.

Share repurchase

Program by which a corporation buys back its own shares in the open market. It is usually
done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases
earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.

Short sale

Selling a security that the seller does not own but is committed to repurchasing eventually. It is
used to capitalize on an expected decline in the security's price.

Stock repurchase

A firm's repurchase of outstanding shares of its common stock.

Substitute sale

A method for hedging price risk that utilizes debt-market instruments, such as interest rate
futures, or that involves selling borrowed securities as the primary assets.

Swap sale

Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate
swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Targeted repurchase

The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.

Terms of sale

Conditions on which a firm proposes to sell its goods services for cash or credit.

Wholesale mortgage banking

The purchasing of loans originated by others, with the servicing rights
released to the buyer.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.

RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)

RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)

Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.

Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.

Purchase discounts

A contra account that reduces purchases by the amount of the discounts taken for early payment.

Purchase returns

A contra account that reduces purchases by the amount of items purchased that were subsequently returned.

Purchases

Items purchased by the company for the purpose of resale.

Purchases journal

A journal used to record the transactions that result in a credit to accounts payable.

Sales

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.

Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.

Sales journal

A journal used to record the transactions that result in a credit to sales.

Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.

return on sales

This ratio equals net income divided by sales revenue.

open purchase ordering

a process by which a single purchase
order that expires at a set or determinable future
date is prepared to authorize a supplier to provide a large
quantity of one or more specified items on an as-requested
basis by the customer

sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company

sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point

Purchase price

Price actually paid for a security. Typically the purchase
price of a bond is not the same as the redemption value.

Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.

Gross sales

The total sales recorded prior to sales discounts and returns.

Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.

Purchase method

An accounting method used to combine the financial statements of
companies. This involves recording the acquired assets at fair market value, and the
excess of the purchase price over this value as goodwill, which will be amortized
over time.

Sales allowance

A reduction in a price that is allowed by the seller, due to a problem
with the sold product or service.

Sales discount

A reduction in the price of a product or service that is offered by the
seller in exchange for early payment by the buyer.

Sales value at split-off

A cost allocation methodology that allocates joint costs to joint
products in proportion to their relative sales values at the split-off point.

percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.

stock repurchase

Firm buys back stock from its shareholders.

terms of sale

Credit, discount, and payment terms offered on a sale.

Sales Tax

A tax levied as a percentage of retail sales.

Available-for-Sale Security

A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.

Gain-on-Sale Accounting

Up-front gain recognized from the securitization and sale of a pool
of loans. Profit is recorded for the excess of the sales price and the present value of the estimated
interest income that is expected to be received on the loans above the amounts funded on the loans
and the present value of the interest agreed to be paid to the buyers of the loan-backed securities.

Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.

Sales-type Lease

Lease accounting used by a manufacturer who is also a lessor. Up-front gross
profit is recorded for the excess of the present value of the lease payments to be received across
a lease term over the cost to manufacture the leased equipment. Interest income also is recognized
on the lease receivable as it is earned over the lease term.

Conditional Sale

A type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made.

Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Purchase Agreement

This legal document records the final understanding of the parties with respect to the proposed transaction.

Sale and Leaseback

An agreement in which the owner of a property sells that property to a person or institution and then leases it back again for an agreed period and rental.

point of sale (POS)

The terminal at which a customer uses his/her debit card to make a direct payment transaction. See also Interac Direct Payment.

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.

Cash and carry

purchase of a security and simultaneous sale of a future, with the balance being financed
with a loan or repo.

Clearing house / Clearinghouse

An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.

Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

Drop, the

With the dollar roll transaction the difference between the sale price of a mortgage-backed passthrough,
and its re-purchase price on a future date at a predetermined price.

Equity collar

The simultaneous purchase of an equity floor and sale of an equity cap.

Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Forward cover

purchase or sale of forward foreign currency in order to offset a known future cash flow.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.

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