Citibank: basic of corporate finance
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G-10 GLOSSARY
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Unsystematic
Risk
The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as asset-specific risk or
company-specific risk.
Valuation
The process of estimating the value of financial assets or
securities
Variance
The weighted average of the squared deviations from the
expected value
Volatility
The probability of change
Weighted
Average Cost
of Capital
(WACC)
The weighted average of the costs of the capital components
(debt, preferred stock, and common stock)
Yield Curve
A graphical representation of the level of interest rates for
securities of differing maturities at a specific point of time
Yield to Maturity
The measure of the average rate of return that will be earned on a
debt security held until it matures
Zero-coupon
Bond
A security that makes no interest payments; it is sold at a discount
at issue and then repaid at face value at maturity
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Index
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INDEX
A
Accrued Interest 9-14, 9-15, 9-21, 9-27, 9-43
Acid-Test Ratio 1-35, 1-36, 1-47
Annuity 3-31 — 3-33, 3-41, 4-5, 4-12
Annuity Due 3-31, 3-32
Average Collection Period (ACP) 1-36, 1-37, 1-47
B
Basic Earnings Power Ratio 1-42, 1-43, 1-47
Basis Point 9-24, 10-9—10-12, 10-14
Benchmark 6-33, 10-9
Beta 6-3, 6-33—6-37, 6-41—6-47, 7-6—7-8, 7-18
Bond 2-1—2-5, 2-8—2-11, 2-14, 3-11, 4-1—4-7, 4-12, 5-2,
5-4, 6-42, 7-2, 7-3, 7-7, 8-15, 9-1—9-3, 9-6,
9-11—9-15, 9-19—9-23, 9-25—9-27, 9-33—9-39,
9-43, 9-44,10-1, 10-10—10-12, 10-14, 10-15
Bond Equivalent Yield 9-1, 9-6, 9-13, 9-34, 9-39
Book Value 1-4, 1-45, 8-15, 8-23
Book Value per Share 1-45
C
Call Option 10-1, 10-2, 10-4—10-6, 10-8, 10-15
Capital Asset Pricing Model (CAPM) 6-45—6-47, 7-5, 7-6, 7-8
Capital Budgeting 5-1, 5-18, 5-27
Capital Market 2-1—2-3, 2-14, 10-1,10-16
Capital Structure 1-39, 1-44, 7-13, 7-15, 8-13, 8-18
Common Stock 1-2, 1-6, 1-22, 1-25, 1-26, 1-34, 1-44, 4-1, 4-7—4-13, 7-
1, 7-2, 7-4, 7-5, 7-8, 7-18, 8-2, 8-13, 8-24, 10-3
Company-specific Risk 6-27, 6-28, 6-30
Compound Interest 3-1, 3-2, 3-9, 3-35, 3-41
Continuous Compounding 3-12, 3-13, 3-15, 3-16, 3-24, 3-25, 3-41
Continuous Discounting 3-24, 3-25, 3-41, 8-1
Correlation Coefficient 6-24—6-26
Cost of Capital 7-1, 7-8, 7-17—7-19, 8-29
Cost of Common Stock 7-4, 7-8
Cost of Debt 7-1—7-3, 7-8, 7-13, 7-14, 7-17
Cost of Equity 6-45, 7-4—7-7, 7-15—7-18
Cost of Preferred Stock 7-3, 7-8, 7-15, 7-16
Coupon(s) 4-2, 4-5, 4-6, 9-1, 9-2, 9-6, 9-11—9-15, 9-19,
9-21—9-23, 9-27, 9-33, 9-35, 9-36, 9-38, 9-39,
9-43,10-9
Coupon Rate 4-2, 4-4—4-7, 5-2, 9-11, 9-13, 9-19, 9-20, 9-26, 9-33, 9-
34, 9-36, 9-38, 9-39
Current Ratio 1-35
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I-2 INDEX
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D
Debt Ratio 1-40
Derivative 10-1, 10-16
Discount Rate 3-21—3-23, 3-25, 3-33—3-36, 3-41, 4-5—4-10, 5-4,
5-10—5-12, 5-15—5-18, 5-27, 7-1, 7-5, 7-13—7-17,
8-8—8-10, 8-13, 8-18, 8-25, 9-1, 9-2, 9-4, 9-7, 9-11,
9-12, 9-19, 9-24, 9-34—9-36, 9-39, 9-43
Discounting 3-21, 3-24, 3-25, 3-32, 3-33, 3-41, 4-5, 5-18, 7-1, 7-15,
7-16, 7-18, 7-19, 8-1, 8-2, 8-13, 8-21, 8-29, 9-12, 9-36,
9-39
Discrete Compounding 3-9, 3-11, 3-13
Diversification 6-21, 6-25, 6-26, 6-28—6-30, 6-33
Duration 9-1, 9-27, 9-33—9-39, 9-44
E
Earnings per Share (EPS) 1-44, 8-21, 8-22
Effective Interest Rate 5-2—5-5
Eurobond 9-2, 9-19, 9-20, 9-22, 9-27, 9-36, 9-37, 9-43
F
Face Value 3-24, 4-2—4-7, 7-3, 9-3—9-5, 9-11—9-14, 9-19,
9-20, 9-22, 9-25, 9-33, 9-38, 9-43
Fixed Assets Turnover Ratio 1-36, 1-38, 1-39, 1-47
Fixed Charge Coverage Ratio 1-40, 1-41, 1-47
Free Cash Flow 8-2, 8-4—8-7, 8-10, 8-16
Future Value 3-1, 3-2, 3-10—3-13, 3-16, 3-21—3-25, 3-31, 3-32,
3-34—3-36, 3-41, 5-2, 9-12
I
Independent Projects 5-11
Internal Rate of Return (IRR) 5-1, 5-12, 5-15—5-18, 5-21, 5-27
Inventory Turnover Ratio 1-36, 1-37, 1-46, 1-47
Investment 1-1, 1-3, 1-6, 1-7, 1-15, 1-23, 1-40, 1-43, 2-2—2-7,
2-9, 2-10, 2-14, 3-2, 3-3, 3-9—3-11, 3-13, 3-16, 3-21, 3-
22, 3-24, 3-25, 3-33, 3-34, 3-36, 3-41, 4-4, 4-9, 4-10, 5-
1—5-5, 5-9—5-12, 5-15—5-21, 6-3—6-5, 6-8, 6-12, 6-
18, 6-21—6-23, 6-37, 6-42, 6-44, 6-45, 7-1—7-4,
7-6, 7-18, 7-19, 8-2—8-4, 8-6, 8-16, 8-17, 8-22—8-24,
8-27, 8-28, 9-1, 9-4, 9-5, 9-20, 10-3, 10-6
L
Liquidation Value 8-21, 8-24
Liquidity 1-4, 1-42, 1-45, 2-3, 2-8, 2-9, 2-12, 2-13, 2-15, 8-26, 8-
27, 10-3
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INDEX I-3
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M
Market Risk 6-28, 6-41, 6-42, 6-46
Market to Book Ratio 1-44, 1-45, 1-47, 8-21, 8-23
Maturity 2-3, 2-8, 2-9, 2-11—2-13, 3-21, 3-24, 3-25, 3-42,
4-2—4-7, 4-11, 9-2—9-7, 9-11—9-15, 9-19, 9-20,
9-23—9-26, 9-33, 9-34, 9-36, 9-38, 9-39, 9-43, 9-44,
10-2, 10-4, 10-6
Money Market 2-1—2-3, 2-14, 9-6, 9-7
N
Net Present Value (NPV) 5-1, 5-5, 5-9—5-12, 5-15—5-18, 5-20, 5-27, 7-18
Nominal Interest Rate 5-2—5-5, 5-17, 5-18, 5-27
O
Option 2-4, 2-5, 10-1—10-8
Ordinary Annuity 3-31, 3-32
P
Par Value 1-7, 4-6, 7-4, 9-15, 9-19, 9-26, 9-33
Payback Period 5-18, 5-19, 5-21, 5-28
Perpetuity 3-33, 3-34, 3-36, 3-42, 4-7, 4-8, 4-11, 4-12,
8-8—8-10, 8-13, 8-14, 8-24, 8-25, 9-37
Portfolio 4-4, 6-1, 6-3, 6-21—6-30, 6-33, 6-35—6-37, 6-41,
6-42, 6-45, 6-46, 7-7, 8-27, 9-1, 9-37, 10-10
Portfolio Diversification 6-21, 6-28, 6-30
Portfolio Weight 6-22, 6-33
Preferred Stock 1-2, 1-5, 1-7, 1-22, 1-25, 1-26, 1-34, 3-33, 3-34,
4-1, 4-11—4-13, 7-1—7-4, 7-8, 7-15—7-17,
8-13—8-15, 8-18
Present Value (PV) 3-1, 3-21—3-25, 3-32—3-36, 3-41, 4-1, 4-2,
4-5—4-12, 5-9, 5-10, 5-19, 5-20, 5-27, 5-28, 7-1,
7-5, 7-18, 7-19, 8-1, 8-2, 8-9, 8-10, 8-13—8-15,
8-17, 9-1, 9-11, 9-12, 9-34—9-37, 9-39
Price to Earnings (P/E) Ratio 1-44, 1-47, 8-21 — 8-23
Primary Market 2-4, 4-4
Probability Distribution 6-4—6-8, 6-12—6-18
Profit Margin Ratio 1-42, 1-46, 1-47
Profitability Index (PI) 5-20—5-21, 5-28
Project 5-10—5-12, 5-15—5-21, 5-28, 6-1, 6-3, 6-4, 6-7, 6-8,
6-11—6-13, 6-15, 6-17, 6-18, 7-1, 7-2, 7-4, 7-7,
7-15—7-19, 8-1, 8-5, 8-7—8-10, 8-13, 8-17, 8-18,
8-21, 8-26
Put Option 10-1, 10-2, 10-4, 10-6—10-8, 10-15
Q
Quick Ratio 1-35, 1-36, 1-47
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I-4 INDEX
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R
Ratio Analysis 1-33, 1-47
Real Interest Rate 5-4, 5-5, 5-27
Residual Value 8-1, 8-2, 8-8—8-10, 8-13—8-15, 8-17, 8-18, 8-29
Return on Common Equity Ratio 1-42, 1-43, 1-47
Return on Total Assets Ratio 1-42, 1-43, 1-47
Risk Premium 2-8—2-10, 2-13, 6-29, 6-35, 6-41—6-46
Risk-free Rate 2-7, 2-8, 2-12, 2-15, 5-4, 6-4, 7-6, 7-8
S
Secondary Market 2-4, 2-9, 4-4, 9-2, 9-6, 9-43, 10-3
Security Market Line 6-43—6-46
Simple Interest 3-2—3-4, 3-41, 9-5, 9-25
Standard Deviation 6-3, 6-12, 6-16—6-18, 6-22, 6-23, 6-25, 6-26, 6-28, 6-
29, 6-33, 6-35, 6-45
Swap 2-5, 10-1, 10-9—10-16
Systematic Risk 6-3, 6-27, 6-28, 6-30, 6-33, 6-35, 6-37, 6-45
T
Times Interest Earned Ratio 1-40, 1-41, 1-47
Total Asset Turnover Ratio 1-36—1-39, 1-47
Total Debt to Total Assets Ratio 1-40
U
Unsystematic Risk 6-3, 6-27—6-30, 6-35, 6-37, 6-45
V
Valuation 1-1, 3-31, 4-1, 4-7—4-12, 6-1, 6-3, 8-1, 8-8, 8-10, 8-
21, 8-24, 8-26
Variance 6-3, 6-12—6-18, 6-45
Volatility 2-10, 6-3, 6-18, 6-33, 6-37, 6-47, 8-1
W
Weighted Average Cost of Capital
(WACC)
7-1, 7-8, 7-15, 7-16, 7-18, 7-19, 8-13
Y
Yield Curve 2-10—2-13, 2-15
Yield to Maturity 9-3—9-4, 9-7, 9-11—9-13, 9-19, 9-20,
9-24—9-26, 9-34, 9-36, 9-38, 9-39, 9-43
Z
Zero-coupon Bond 1-4, 3-24, 4-3, 9-2—9-4, 9-6, 9-7, 9-38, 9-43
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