Definition of White knight

White knight

A friendly potential acquirer of a firm sought out by a target firm that is threatened by a less
welcome suitor.

white knight

Friendly potential acquirer sought by a target company threatened by an unwelcome suitor.

Acquirer

A firm or individual that is acquiring something.

Affirmative covenant

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

Blue-chip company

Large and creditworthy company.

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.

Cashout

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

Company-specific risk

Related: Unsystematic risk

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.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

Customary payout ratios

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

Days' sales outstanding

Average collection period.

Depository Trust Company (DTC)

DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Dividend payout ratio

Percentage of earnings paid out as dividends.

Down-and-out option

Barrier option that expires if asset price hits a barrier.

Fallout risk

A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.

Feasible target payout ratios

Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

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.

First-In-First-Out (FIFO)

A method of valuing the cost of goods sold that uses the cost of the oldest item in
inventory first.

Full-payout lease

See: financial lease.

Harmless warrant

Warrant that allows the user to purchase a bond only by surrendering an existing bond
with similar terms.

Holding company

A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Input-output tables

Tables that indicate how much each industry requires of the production of each other
industry in order to produce each dollar of its own output.

Intercompany loan

Loan made by one unit of a corporation to another unit of the same corporation.

Intercompany transaction

Transaction carried out between two units of the same corporation.

Intrinsic value of a firm

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

Investor fallout

In the mortgage pipeline, risk that occurs when the originator commits loan terms to the
borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing.

Last-In-First-Out (LIFO)

A method of valuing inventory that uses the cost of the most recent item in
inventory first.

Lessee

An entity that leases an asset from another entity.

Lessor

An entity that leases an asset to another entity.
Letter of comment A communication to the firm from the SEC that suggests changes to its registration
statement.

Leveraged buyout (LBO)

A transaction used for taking a public corporation private financed through the use
of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new
corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or
junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the
bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in
such investments.

LIFO (Last-in-first-out)

The last-in-first-out inventory valuation methodology. A method of valuing
inventory that uses the cost of the most recent item in inventory first.

Lock-out

With PAC bond CMO classes, the period before the PAC sinking fund becomes effective. With
multifamily loans, the period of time during which prepayment is prohibited.

Lessor

An entity that leases an asset to another entity.

Management buyout (MBO)

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

Neglected firm effect

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

Netting out

To get or bring in as a net; to clear as profit.

Open-outcry

The method of trading used at futures exchanges, typically involving calling out the specific
details of a buy or sell order, so that the information is available to all traders.

Out-of-the-money option

A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of
the underlying security.

Outright rate

Actual forward rate expressed in dollars per currency unit, or vice versa.
outsourcing
he practice of purchasing a significant percentage of intermediate components from outside suppliers.

Outstanding share capital

Issued share capital less the par value of shares that are held in the company's treasury.

Outstanding shares

Shares that are currently owned by investors.

Payout ratio

Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

Priced out

The market has already incorporated information, such as a low dividend, into the price of a stock.

Riskless rate

The rate earned on a riskless investment, typically the rate earned on the 90-day U.S. Treasury Bill.

Riskless rate of return

The rate earned on a riskless asset.

Riskless arbitrage

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

Riskless or risk-free asset

An asset whose future return is known today with certainty. The risk free asset is
commonly defined as short-term obligations of the U.S. government.

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).

Stockout

Running out of inventory.

Take-out

A cash surplus generated by the sale of one block of securities and the purchase of another, e.g.
selling a block of bonds at 99 and buying another block at 95. Also, a bid made to a seller of a security that is
designed (and generally agreed) to take him out of the market.

Target cash balance

Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.

Target firm

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

Target payout ratio

A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line
increases in earnings occur.

Target zone arrangement

A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

Targeted repurchase

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

Without

If 70 were bid in the market and there was no offer, the quote would be "70 bid without." The
expression "without" indicates a one-way market.

Without recourse

Without the lender having any right to seek payment or seize assets in the event of
nonpayment from anyone other than the party (such as a special-purpose entity) specified in the debt contract.

Workout

Informal arrangement between a borrower and creditors.

Workout period

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

FIFO (First In, First Out)

An inventory valuation method that presumes that the first units received were the first ones
sold.

LIFO (Last In, First Out)

An inventory valuation method that presumes that the last units received were the first ones
sold.

Routing

A list of all the labour or machining processes and times required to convert raw materials into finished goods or to deliver a service.

Target costing

A method of costing that is concerned with managing whole-of-life costs of a product/service during the product design phase – the difference between target price (to achieve market share) and the target profit margin.

Target rate of return pricing

A method of pricing that estimates the desired return on investment to be achieved from the
fixed and working capital investment and includes that return in the price of a product/service.

First-in, first-out (FIFO)

A method of accounting for inventory.

Last-in, first-out (LILO)

A method of accounting for inventory.

Outstanding shares

The number of shares that are in the hands of the public. The difference between issued shares and outstanding shares is the shares held as treasury stock.

dividend payout ratio

Computed by dividing cash dividends for the year
by the net income for the year. It’s simply the percent of net income distributed
as cash dividends for the year.

Companyspecific Risk

See asset-specific risk

input-output coefficient

a number (prefaced as a multiplier
to an unknown variable) that indicates the rate at which each
decision variable uses up (or depletes) the scarce resource

limited liability company

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by small professional (such as accounting) firms

outlier

an abnormal or nonrepresentative point within a data set

out-of-pocket cost

a cost that is a current or near-current cash expenditure

outsourcing

the use, by one company, of an external
provider of a service or manufacturer of a component

outsourcing decision

see make-or-buy decision

routing document

see operations flow document

service company

an individual or firm engaged in a high or moderate degree of conversion that results in service output

stockout

the condition of not having inventory available
upon need or request

target costing

a method of determining what the cost of a
product should be based on the product’s estimated selling
price less the desired profit

First in, first-out costing method (FIFO)

A process costing methodology that assigns the earliest
cost of production and materials to those units being sold, while the latest costs
of production and materials are assigned to those units still retained in inventory.

Freight out

The transportation cost associated with the delivery of goods from a company
to its customers.

Last-in, first-out (LIFO)

An inventory costing methodology that bases the recognized cost of
sales on the most recent costs incurred, while the cost of ending inventory is based
on the earliest costs incurred. The underlying reasoning for this costing system is
the assumption that goods are sold in the reverse order of their manufacture.

Lessee

The entity that contracts to make rental payments to a lessor in exchange for the
use of an asset.

Lessor

The entity that rents property that it owns to a second party in exchange for a
periodic set of rental payments.

Leveraged buyout

The purchase of one business entity by another, largely using borrowed
funds. The borrowings are typically paid off through the future cash flow of
the purchased entity.

Parent company

A company that retains control over one or more other companies.

Subsidiary company

A company that is controlled by another company through ownership
of the majority of its voting stock.

company cost of capital

Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.

dividend payout ratio

Percentage of earnings paid out as dividends.

leveraged buyout (LBO)

Acquisition of the firm by a private group using substantial borrowed funds.

management buyout (MBO)

Acquisition of the firm by its own management in a leveraged buyout.

outstanding shares

Shares that have been issued by the company and are held by investors.

payout ratio

Fraction of earnings paid out as dividends.

workout

Agreement between a company and its creditors establishing the steps the company must take to avoid bankruptcy.

Crowding Out

Decreases in aggregate demand which accompany an expansionary fiscal policy, dampening the impact of that policy.

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