Business definitions and core concepts

Business Definitions

Stock split: A stock split occurs when a company increases the number of outstanding shares without changing the equity, or investment interest, of existing shareholders.

Bonds: A bond is a government or corporation issued certificate of debt that guarantees payment of the original amount of investment, plus interest.

Floating rate bonds: A floating rate bond is a bond whose interest is tied to a specific benchmark, such as the Treasure Bill Rate. In this way, rather than having a specific interest rate applied, the bond rate is adjusted periodically in relation to the benchmark rate.

Junk bonds: Junk bonds are corporate bonds with high yield, or rate of return, but also high risk, or likelihood of loss.

Over the counter market: The over the counter market is the market for securities (investments) that are not traded on an exchange, usually because of an inability to meet listing requirements for standard exchanges. These securities are traded by brokers and dealers over computers and by phone directly with one another. These securities tend to be high risk, difficult to research, and are infrequently traded.

Serial bonds: Serial bonds are sets of bonds issued at the same time, but with different maturity dates, or dates on which the debt is due for payment. These are also called investment bonds.

Common stocks: Common stocks are investments representing equity ownership in a company. These securities also provide voting rights within the company (typically, one vote per share) and entitle the shareholder to dividends (taxable payments by the company based on company earnings) and capital appreciation (increase in market price of stocks).

Equity: Equity is considered to be a form of ownership interest in a corporation, generally through common or preferred stocks. It is also the total assets (value) minus total liabilities (debts), which is referred to as the shareholder equity. For example, in real estate, equity would be the difference between the value of a property, and what the owner owes against the property.

Maturity date: The maturity date is the date on which a debt is due for payment.

Stock market: The term 'stock market' is a general term that can be applied to any organized trading of stocks, either through exchanges or through over the counter markets.

Stock exchange: An exchange where shares of stock and common stock are sold and purchased. Common exchanges are the New York Stock Exchange and American Stock Exchange.

Secured bonds: A secured bond is a bond issued with the backing of collateral. A common example of a secured bond would be a mortgage bond. If the bond is defaulted on, the title of the collateral is transferred to the bondholder.

Factoring: Factoring occurs when a company sells their accounts receivable, or customer's debt, to another entity at a discount. The entity then assumes all credit risk of the account debtors, and receives the cash as these debts are settled. This process is also known as accounts receivable financing.

Trade credit: Trade credit refers to a company's open account arrangement with vendors. As the company makes purchases, the vendor debits the company's account, and bills them for this credit transaction.

Commercial paper: Commercial paper is an unsecured obligation issued by a corporation or bank to finance short-term credit needs, with typical maturity dates from two to 270 days. Generally issued by companies with high credit ratings, commercial paper investments are generally low risk.

Line of credit: A line of credit is the specific amount of unsecured credit to a specific credit holder for a specific time frame. A common form of credit line is the credit card.