Financial Glossary


B

Balance sheet. A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity.

Balanced fund. A mutual fund which has an investment policy of "balancing" its portfolio generally by including bonds and shares in varying proportions influenced by the fund's investment outlook.

Bank Rate. The rate at which central banks lend funds to national banks. 

Bankruptcy. A legal proceeding that protects a debtor from legal action by some creditors. There are two basic ways of filing for personal bankruptcy. A Chapter 7 bankruptcy declaration gets rid of all debts (except some taxes and maybe alimony payments); Chapter 13 allows a borrower with a steady income to pay off bills over a 36- to 60-month period.

Bankers' Acceptance. Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer's bank.

Basis Point. A phrase used to describe differences in bond yields, with one basis point representing one-hundredth of a percentage point. Thus if Bond X yields 8.5 per cent and Bond Y 8.75 per cent, the difference is 25 basis points. Same phrase is used when describing rise and falls of the dollar.

Bear Market. A stock market whose index of representative stocks is declining in value. A "bearish" investor believes share prices will fall. A rule of thumb is that when a market declines 20 per cent it is bear.

Benchmarks. Described as performance goals against which a company's success is measured. Benchmarks are often used by investors to help determine whether a company should receive additional funding or whether management should receive extra stock.

Best Efforts Offering. A securities offering in which the underwriter is only committed to sell as many securities as possible at the price agreed to between the company and the underwriter and is not obligated to purchase securities not sold. (See Mini/Maxi Offering.)

Beta. A statistical term used to illustrate the relationship of the price of an individual security or mutual fund unit to similar securities or financial market indexes. Put another way, a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Also known as "beta coefficient".

Bid price. The price at which a buyer offers to pay for a security or property.

Bid Size. The number of shares being offered for purchase at the bid price. The figure is often expressed in terms of hundreds of shares.

Blank Check Preferred Stock. Shares of preferred stock that are authorized by a company, but not issued, nor have it's specific rights and preferences been fixed. The board of directors can establish the specific rights and preferences of one or more offerings of blank check preferred, without receiving additional stockholder approval, provided the rights and preferences are by agreement or within the limits established in the company's certificate of incorporation. The existence of blank check preferred permits a company to structure, offer, and sell a financing quickly and privately.

 Blended-average Annual Return. The average annual return based on the combined performance of all transactions for the stock or mutual fund for the history of the portfolio.

Blue-chip Fund. A stock-based mutual fund that invests in blue chip stocks (a type of growth fund).

Blue-chip Stocks. Stocks with good investment qualities. They are usually common shares of well-established companies with good earnings records and regular dividend payments that are known nationally for the quality and wide acceptance of their products and services.

Blue Sky Laws. State securities laws with which a company selling securities in that state must comply.

Board Lot. A standard number of shares for trading transactions. The number of shares in a board lot varies with the price level of the security, although in most cases a board lot is 100 shares.

Board of Directors. A committee elected by the shareholders of a company, empowered to act on their behalf in the management of company affairs. Directors are normally elected each year at the annual meeting. Essentially, the individuals whose collective legal responsibility it is to manage the business and operations of a corporation. Most boards of directors provide oversight authority over management who run the day-to-day operations of a company. The certifcate of incorporation and bylaws establish the number of directors for each company, either a range (e.g., five to nine, as determined by the stockholders) or a fixed number (often an odd number to avoid voting deadlocks).

Bond. A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.

Bond fund. A mutual fund whose portfolio consists primarily of bonds.

Book Value. The value of net assets that belong to a company's shareholders, as stated on the balance sheet. The purchase price plus reinvested dividends. Not to be confused with market value. Put another way, a company's book value or net worth is its total assets minus intangible assets, debt and other liabilities. A company's book value might be more or less than its Market Value. NOTE: Book value is the price paid for a particular asset. This price never changes so long as you own the asset. On the other hand, Market Value is the current price at which you can sell an asset.

Bottom-Up Investing. An investment approach that de-emphasizes the significance of economic and market cycles. This approach focuses on the analysis of individual stocks. In bottom-up investing, therefore, the investor focuses his or her attention on a specific company rather than on the industry in which that company operates or on the economy as a whole. The bottom-up approach assumes that individual companies can do well even in an industry that is not performing very well. This is the opposite of "top-down investing". See Top-Down Investing.

Bought deal. A new issue of stocks or bonds bought from the issuer by an investment dealer, acting alone or with other dealers, for resale to clients. The dealer(s) risks its own capital in the deal in a bid to make higher profits.

Break-Even. This is a term used to describe a point at which revenues equal costs.

Break-Even Analysis. An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).

Bridge Loan. A short term loan to cover the immediate cash requirements until permanent financing is received. Also known as Bridge financing. As the name implies, bridge financing is intended as temporary funding that eventually will be replaced with permanent capital. In some cases, lenders will provide buyout firms and venture capital firms with bridge loans so that they can begin investing, before they have closed on capital for their funds. Likewise, a buyout or venture firm might provide a portfolio company with temporary financing until permanent financing is in place.

Broken IPO. When a new issue falls below its initial offering price.

Broker. An agent who handles the public's orders to buy and sell securities, commodities, or other property. A commission is generally charged for this service.

Brokerage. A business that employs brokers to enact transactions between securities sellers and buyers. There are three types of brokerages. Full-service brokerages, discount brokerages, and deep-discount brokerages.

Bull Market. A stock market whose index has been rising in value. A "bullish" investor believes share prices will rise.

Business Broker. Professionals who assist in arranging the financing, purchase or sale of a business.

Business Cycle. The ebb and flow of the economy through successive stages of recession and recovery. Economic activity tends to fluctuate. Periods when real GDP is falling are called recessions; periods when real GDP is rising are called recoveries. Fluctuations in the economy's growth rate are inevitable. However, economists disagree about how effective government fiscal policy and monetary policy can be in smoothing out those fluctuations.

Business Expansion Investment. The use of capital to create more money through the addition of fixed assets or through income producing vehicles.

Buyout. This is defined as the purchase of a company or a controlling interest of a corporation's shares or product line or some business. A leveraged buyout is accomplished with borrowed money or by issuing more stock.

Buying on Margin. Using investment as collateral, a portion of the cost is borrowed from the investment dealer or stock broker.

Bylaws. A company's charter document that governs basic corporate activities, internal procedures and certain of the substantive rights relating to the authority of the board of directors, meetings of the board and stockholders, voting rights, the election and duties of officers, indemnification, and other matters.