Glossary of Finance Terms

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S Corporation
A small corporation which, under Subchapter S of the Internal Revenue Code, elects to be taxed as a proprietorship or a partnership yet retains limited liability and other benefits of the corporate form of organization.
Sale and Leaseback
An arrangement whereby a firm sells land, buildings, or equipment and simultaneously leases the property back for a specified period under specific terms.
Sales Forecast
A forecast of a firm's unit and dollar sales for some future period; it is generally based on recent sales trends plus forecasts of the economic prospects for the nation, region, industry, and so forth.
Scenario Analysis
A risk analysis technique in which "bad" and " good" sets of financial circumstances are compared with a most likely, or base-case, situation.
Seasonal Dating
Terms used to induce customers to buy early by not requiring payment until the purchaser's selling season, regardless of when the goods are shipped.
Secondary Market
The market in which "used" stocks are traded after they have been issued by corporations.
Secondary Markets
Markets in which securities and financial assets are traded among investors after they have been issued by corporations.
Secured Loan
A loan backed by collateral, often inventories or receivables.
Security Market Line (SML)
The line on a graph that shows the relationship between risk as measured by beta and the required rate of return for individual securities.
Semiannual Compounding
The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year.
Sensitivity Analysis
A risk analysis technique in which key variables are changed one at a time and the resulting changes in the NPV and IRR are observed.
Short Hedges
Futures contracts are sold to guard against price declines.
Signal
An action taken by a firm's management which provides clues to investors about how management views the firm's prospects.
Sinking Fund Provision
A provision in a bond contract that requires the issuer to retire a portion of the bond issue each year.
Social Responsibility
The concept that businesses should be actively concerned with the welfare of society at large.
Sole Proprietorship
An unincorporated business owned by one individual.
Speculation
With futures, it involves betting future price movements.
Speculative Balance
A cash balance that is held to enable the firm to take advantage of any bargain purchases that might arise.
Spin-Off
A divestiture in which the stock of a subsidiary is given to the parent company's stockholders.
Spontaneously Generated Funds
Funds that are obtained automatically from routine business transactions.
Spot Rate
The effective exchange rate for a foreign currency for delivery on (approximately) the current day.
Stand -Alone Risk
The risk an investor would face if he or she held only one asset Stand-alone risk is one part of "total risk," with the other part being risk which can be eliminated through diversification.
Stand-Alone Risk
The risk an asset would have if it were a firm's only asset and if investors owned only one stock. It is measured by the variability of the asset's expected returns.
Standard Deviation
A statistical measure of the variability of a set of observations.
Statement of Cash Flows
A statement reporting the impact of a firm's operating, investing, and financing activities on cash flows over an accounting period.
Statement of Retained Earnings
A statement reporting how much of the firm's earnings were retained in the business rather than paid out in dividends. The figure for retained earnings that appears here is the sum of the annual retained earnings for each year of the firm's history.
Stepped-Up Exercise Price
An exercise price that is specified to rise if a warrant is exercised after a designated date.
Stock Dividend
A dividend paid in the form of additional shares of stock rather than in cash.
Stock Repurchase
A transaction in which a firm buys back shares of its own stock, thereby decreasing share outstanding, increasing EPS, and, often, increasing the stock price.
Stock Split
An action taken by a firm to increase the number of share outstanding, such as doubling the number of share outstanding by giving each stockholder two new share for each one formerly held.
Stockholder Wealth Maximization
The primary goal for management decision; considers the risk and timing associated with expected earnings per share in order to maximize the price of the firm's common stock.
Strategic Business Plan
A long-run plan which outlines in broad terms the firm's basic strategy for the next 5 to 10 years.
Stretching Accounts Payable
The practice of deliberately paying late.
Strike (Exercise) Price
The price that must be paid for a share of common stock when an option is exercised.
Structured Note
A debt obligation derived from another debt obligation.
Subordinated Debentures
A bond having a claim on assets only after the senior debt has been paid off in the event of liquidation.
Sunk Cost
A cash outlay that has already been incurred and which cannot be recovered regardless of whether the project is accepted or rejected.
Supernormal (Nonconstant) Growth
The part of the life cycle of a firm in which it grows much faster than the economy as a whole.
Swap
Two parties agree to exchange obligations to make specified payment streams.
Symmetric Information
The situation in which investors and managers have identical information about firms' prospects.
Synchronized Cash Flows
A situation in which inflows coincide with outflows, thereby permitting a firm to hold low transactions balances.
Synergy
The condition wherein the whole is greater than the sum of its parts; in a synergistic merger, the postmerger value exceeds the sum of the separate companies' premerger values.


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