Definition of Wallflower

Wallflower

Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).

NPV (net present value of cash flows)

Same as PV, but usually includes a subtraction for an initial cash outlay.

PV (present value of cash flows)

the value in today’s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .

Accounting earnings

earnings of a firm as reported on its income statement.

Acid-test ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
items to current liabilities.

Acquisition of stock

A merger or consolidation in which an acquirer purchases the acquiree's Stock.

Adjustable rate preferred stock (ARPS)

Publicly traded issues that may be collateralized by mortgages and MBSs.

American Stock Exchange (AMEX)

The second-largest Stock exchange in the United States. It trades
mostly in small-to medium-sized companies.

Appraisal ratio

The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
deviation.

Arm's length price

The price at which a willing buyer and a willing unrelated seller would freely agree to
transact.

Articles of incorporation

Legal document establishing a corporation and its structure and purpose.

Ask price

A dealer's price to sell a security; also called the offer price.

Asset/equity ratio

The ratio of total assets to Stockholder equity.

Asset activity ratios

ratios that measure how effectively the firm is managing its assets.

Auction rate preferred stock (ARPS)

Floating rate preferred Stock, the dividend on which is adjusted every
seven weeks through a Dutch auction.

Bargain-purchase-price option

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

Basis price

price expressed in terms of yield to maturity or annual rate of return.

Beta equation (Stocks)

The beta of a Stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the Stock

Bid price

This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
speaking, this is the available price at which an investor can sell shares of Stock. Related: Ask , offer.

Blow-off top

A steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen
in charts and used in technical analysis of Stock price and market trends.

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

Breakout

A rise in a security's price above a resistance level (commonly its previous high price) or drop
below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing
move in the same direction. Can be used by technical analysts as a buy or sell indicator.

Buyout

Purchase of a controlling interest (or percent of shares) of a company's Stock. A leveraged buy-out is
done with borrowed money.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.

Call price

The price for which a bond can be repaid before maturity under a call provision.

Capital rationing

Placing one or more limits on the amount of new investment undertaken by a firm, either
by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital
budget.

Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

Cash flow

In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.

Cash flow after interest and taxes

Net income plus depreciation.

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 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 matching

Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
which the manager matches the maturity of each element in the liability stream, working backward from the
last liability to assure all required cash flows.

Cash flow per common share

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

Cash flow time-line

Line depicting the operating activities and cash flows for a firm over a particular period.

Cash-flow break-even point

The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.

Cash ratio

The proportion of a firm's assets held as cash.

Cashout

Refers to a situation where a firm runs out of cash and cannot readily sell marketable securities.

Clean price

Bond price excluding accrued interest.

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.

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.

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.

Conflict between bondholders and stockholders

These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.

Consumer Price Index (CPI)

The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.

Controlled foreign corporation (CFC)

A foreign corporation whose voting Stock is more than 50% owned
by U.S. Stockholders, each of whom owns at least 10% of the voting power.

Conversion parity price

Related:Market conversion price

Convertible price

The contractually specified price per share at which a convertible security can be
converted into shares of common Stock.

Conversion ratio

The number of shares of common Stock that the security holder will receive from
exercising the call option of a convertible security.

Convertible exchangeable preferred stock

Convertible preferred Stock that may be exchanged, at the
issuer's option, into convertible bonds that have the same conversion features as the convertible preferred
Stock.

Convertible preferred stock

Preferred Stock that can be converted into common Stock at the option of the holder.

Corporation

A legal "person" that is separate and distinct from its owners. A corporation is allowed to own
assets, incur liabilities, and sell securities, among other things.

Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

Coverage ratios

ratios used to test the adequacy of cash flows generated through earnings for purposes of
meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

Cumulative preferred stock

Preferred Stock whose dividends accrue, should the issuer not make timely
dividend payments. Related: non-cumulative preferred Stock.

Current ratio

Indicator of short-term debt paying ability. Determined by dividing current assets by current
liabilities. The higher the ratio, the more liquid the company.

Customary payout ratios

A range of payout ratios that is typical based on an analysis of comparable firms.

Days' sales in inventory ratio

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

Days' sales outstanding

Average collection period.

Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common Stockholder equity.

Debt ratio

Total debt divided by total assets.

Debt-service coverage ratio

earnings before interest and income taxes plus one-third rental charges, divided
by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one
minus the tax rate.

Declaration date

The date on which a firm's directors meet and announce the date and amount of the next
dividend.

Delivery price

The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
price at which the futures contract is settled when deliveries are made.

Devaluation A decrease in the spot price of the currency

Direct stock-purchase programs

The purchase by investors of securities directly from the issuer.

Dirty price

Bond price including accrued interest, i.e., the price paid by the bond buyer.

Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values.

Discretionary cash flow

Cash flow that is available after the funding of all positive NPV capital investment
projects; it is available for paying cash dividends, repurchasing common Stock, retiring debt, and so on.

Dividend payout ratio

Percentage of earnings paid out as dividends.

Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current Stock price.

Dollar duration

The product of modified duration and the initial price.

Dollar price of a bond

Percentage of face value at which a bond is quoted.

Domestic International Sales Corporation (DISC)

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

Down-and-out option

Barrier option that expires if asset price hits a barrier.

Duration

A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

Earnings

Net income for the company during the period.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

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.

Earnings retention ratio

Plowback rate.

Earnings surprises

Positive or negative differences from the consensus forecast of earnings by institutions
such as First Call or IBES. Negative earnings surprises generally have a greater adverse affect on Stock prices
than the reciprocal positive earnings surprise on Stock prices.

Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.

Economic earnings

The real flow of cash that a firm could pay out forever in the absence of any change in
the firm's productive capacity.

Edge corporations

Specialized banking institutions, authorized and chartered by the Federal Reserve Board
in the U.S., which are allowed to engage in transactions that have a foreign or international character. They
are not subject to any restrictions on interstate banking. Foreign banks operating in the U.S. are permitted to
organize and own and Edge corporation.

Effective call price

The strike price in an optional redemption provision plus the accrued interest to the
redemption date.

Effective duration

The duration calculated using the approximate duration formula for a bond with an
embedded option, reflecting the expected change in the cash flow caused by the option. Measures the
responsiveness of a bond's price taking into account the expected cash flows will change as interest rates
change due to the embedded option.

Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common Stock on a preferential basis.

Employee stock ownership plan (ESOP)

A company contributes to a trust fund that buys Stock on behalf of
employees.

Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.

Equivalent annual cash flow

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

Exchange of stock

Acquisition of another company by purchase of its Stock in exchange for cash or shares.

Exercise price

The price at which the underlying future or options contract may be bought or sold.

Expected future cash flows

Projected future cash flows associated with an asset of decision.

Expense ratio

The percentage of the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1
(distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the
portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign Stocks.
These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an
Operating Expense ratio (OER).

Expiration

The time when the option contract ceases to exist (expires).

Expiration cycle

An expiration cycle relates to the dates on which options on a particular security expire. A
given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any
point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2
in far-term months.

Expiration date

The last day (in the case of American-style) or the only day (in the case of European-style)
on which an option may be exercised. For Stock options, this date is the Saturday immediately following the
3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of
an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding
Thursday.

Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.

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