Definition of Sale and lease-back

Sale and lease-back

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

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.

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.

Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.

Back fee

The fee paid on the extension date if the buyer wishes to continue the option.

Back office

Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the back-end load is the contingent deferred sales charge, or CDSC.

Back-to-back financing

An intercompany loan channeled through a bank.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.

Back-up

1) When bond yields and prices fall, the market is said to back-up.
2) When an investor swaps out of one security into another of shorter current maturity he is said to back up.

Backwardation

A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.

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).

Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.

Buy-back

Another term for a repo.

Capital lease

A lease obligation that has to be capitalized on the balance sheet.

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.

Cost of lease financing

A lease's internal rate of return.

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 lease

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

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.

Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.

Domestic International Sales Corporation (DISC)

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

Double-dip lease

A cross-border lease in which the disparate rules of the lessor's and lessee's countries let
both parties be treated as the owner of the leased equipment for tax purposes.

Financial lease

Long-term, non-cancelable lease.

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.

Full-payout lease

See: financial lease.

Full-service lease

Also called rental lease. lease in which the lessor promises to maintain and insure the
equipment leased.

Installment sale

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

Lease

A long-term rental agreement, and a form of secured long-term debt.

Lease Rate

The payment per period stated in a lease contract.

Leveraged lease

A lease arrangement under which the lessor borrows a large proportion of the funds needed
to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the
borrowing.

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.

Lookback option

An option that allows the buyer to choose as the option strike price any price of the
underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal
price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Lease Rate

The payment per period stated in a lease contract.

Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.

Mortgage-backed securities

Securities backed by a pool of mortgage loans.

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.

Net lease

A lease arrangement under which the lessee is responsible for all property taxes, maintenance
expenses, insurance, and other costs associated with keeping the asset in good working condition.

Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.

Opening sale

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

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.

Payback

The length of time it takes to recover the initial cost of a project, without regard to the time value of money.

Plowback rate

Related: retention rate.

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 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.

Rental lease

See:full-service lease.

Safe harbor lease

A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the
lessee, if the lessee could not use them, to a lessor that could use them.

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.

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.

Stripped mortgage-backed securities (SMBSs)

Securities that redistribute the cash flows from the
underlying generic MBS collateral into the principal and interest components of the MBS to enhance their use
in meeting special needs of investors.

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 buy-back

The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

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.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Terms of sale

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

True lease

A contract that qualifies as a valid lease agreement under the Internal Revenue code.

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.

Feedback

The retrospective process of measuring performance, comparing it with plan and taking corrective action.

Payback

A method of investment appraisal that calculates the number of years taken for the cash flows from an investment to cover the initial capital outlay.

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.

Leasehold improvements

The cost of improvements made to property that the company leases.

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.

Payback Period

The number of years necessary for the net cash flows of an
investment to equal the initial cash outlay

backflush costing

a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
few allocations, uses standard costs, and has minimal variances
from standard

charge-back system

a system using transfer prices; see transfer
price

payback period

the time it takes an investor to recoup an
original investment through cash flows from a project

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

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.

Capital lease

A lease in which the lessee obtains some ownership rights over the asset
involved in the transaction, resulting in the recording of the asset as company property
on its general ledger.

Gross sales

The total sales recorded prior to sales discounts and returns.

Leasehold improvement

This is any upgrade to leased property by a lessee that will be
usable for more than one year, and which exceeds the lessee’s capitalization limit.
It is recorded as a fixed asset and depreciated over a period no longer than the life
of the underlying lease.

Loss carryback

The offsetting of a current year loss against the reported taxable
income of previous years.

Net sales

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

Operating lease

The rental of an asset from a lessor, but not under terms that would
qualify it as a capital lease.

Payback method

A capital budgeting analysis method that calculates the amount of
time it will take to recoup the investment in a capital asset, with no regard for the
time cost of money.

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.

lease

Long-term rental agreement.

payback period

Time until cash flows recover the initial investment of the project.

percentage of sales models

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

plowback ratio

Fraction of earnings retained by the firm.

terms of sale

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

Sales Tax

A tax levied as a percentage of retail sales.

Accounting and Auditing Enforcement Release (AAER)

Administrative proceedings or litigation releases that entail an accounting or auditing-related violation of the securities laws.

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