Glossary of Finance Terms

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Days Dales Outstanding (DSO)
The average length of time required to collect credit sales.
Days Sales Outstanding (DS0)
The ratio calculated by dividing accounts receivable by average sales per day; indicates the average length of time the firm must wait after making a sale before receiving cash.
Debenture
A long-term bond that is not secured by a mortgage on specific property.
Declaration Date
The date on which a firm's directors issue a statement declaring a dividend.
Default Risk Premium (DRP)
The difference between the interest rate on a U. S. Treasury bond and a corporate bond of equal maturity and marketability.
Defensive Merger
A merger designed to make a company less vulnerable to takeover.
Depreciation
The charge for assets used in production Depreciation is not a cash outlay.
Derivatives
Securities whose values are determined by the market price or interest rate of some other asset.
Detachable Warrant
A warrant that can be detached from a bond and traded independently of it.
Devaluation
The process of officially reducing the value of a country's currency relative to other currencies.
Disbursement Float
The value of the checks which we have written but which are still being processed and thus have not been deducted from our account balance by the bank.
Discount Bond
A bond that sells below its par value; occurs whenever the going rate of interest rises above the coupon rate.
Discount Interest
Interest that is calculated on the face amount of a loan but is paid in advance.
Discount on Forward Rate
The situation when the spot rate is less than the forward rate.
Discounted Payback Period
The length of time required for an investment's cash flows, discounted at the investment's cost of capital, to cover its cost.
Discounting
The process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding.
Diversifiable Risk
That part of a security's risk associated with random events; it can be eliminated by proper diversification.
Divestiture
The sale of some of a company's operating assets.
Dividend Irrelevance Theory
The theory that a firm's dividend policy has no effect on either its value or its cost of capital.
Dividend Policy Decision
The decision as to how much of current earnings to pay out as dividends rather than to retain for reinvestment in the firm.
Dividend Reinvest Plan (DRP)
A plan that enables a stockholder to automatically reinvest dividends received back into the stock of the paying firm.
Dividend Yield
The expected dividend divided by the current price of a share of stock.
Du Pont Chart
A chart designed to show the relationships among return on investment, asset turnover, the profit margin, and leverage.
Du Pont Equation
A formula which shows that the rate of return on assets can be found as the product of the profit margin times the total assets turnover
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