Financial Glossary


P

Par (Or Face) Value. The amount returned to bond-holders at maturity -- $5000 for most municipal bonds and $1000 for most government and corporate bonds. The stated face value of a bond or stock as assigned by the company's charter and expressed as dollars and cents per share. Par value of a common stock usually has little relationship to the current market value and so "no par value" stock is now the norm. Par value of a preferred stock is significant as it indicates the dollar amount of assets each preferred share would be entitled to in the event of winding down the company.

Pari Passu. An equal sharing among different groups. If separate classes of preferred stock are structured to be pari passu with respect to liquidation preferences or dividends, on the sale of a company, all of the pari passu stockholders receive distributions in the same proportions as their relative liquidation preferences. Put another way, it is a latin term that means "of equal step" or "without partiality". Pari-passu is often seen in term sheets, indicating that one series of equity will have the same rights and privileges as another series of equity.

Participating Preferred Stock. Participating Preferred gives the holder, on sale or liquidation, the right to receive first an amount equal to the liquidation preference prior to any distribution to common stockholders and then any amount owed on an as-converted basis as a common stockholder.

Partnership. An ownership entity in which two or more partners are involved where personal taxes are levied on the partners' individual share of income from the partnership, whether recieved or not, but there is no taxation at the partnership, whether received or not, level. A partnership can be either a Limited Partnership or a General Partnership.

Pay-to-Play. A provision that requires a stockholder to participate in a subsequent offering in order to benefit from certain antidilution protections. This provision is used to prevent all investors from benefiting when only certain investors continue providing needed equity, particularly in companies with troubled economic circumstances. Generally, if the stockholder does not purchase his or her pro rata share in a later offering, the stockholder loses the benefit(s) and in extreme cases, may be required to convert to common stock, thereby losing the protective preferred stock provisions.

Payback Period. The length of time it takes to recover the initial cost of a project, without regard to the time value of money.

Penny Stock. Low-priced, often speculative issues usually selling at less than $1 per share.

Pension Plan. A retirement plan offered by some employers that pays a set amount each year during retirement.

Per Capita. Per person. Numbers such as GDP tell much more about our living standards when they are measured per capita. For example, if GDP grows but the population grows at a faster rate, average income actually declines. Looking at GDP per capita would make this apparent since, in such a case, it too would decline.

Phantom Stock. Certificates awarded to employees in lieu of stocks. While not actual shares of a company, phantom stocks act as bonuses based on the increases in value of the company's shares. Often in small operations, and closely held companies. Also known as shadow stocks.

Piggyback Registration Rights. An investor's right to have restricted securities registered with the SEC and sold in connection with a public offering in which the issuer is selling the issuer's own securities or other investors are selling and issuer's securities.

Pink Sheet. A daily list of the bid/ask price for over-the-counter stocks not included in the regular Nasdaq OTC listings. The list is published by the National Quotation Bureau and used by brokerages.

PIPE's. An acronym for “private investing in public equities.” See Private placement. A private investment in public equity, often called a PIPE, involves a private investment firm's, mutual fund's or other qualified investors' purchase of stock in a company at a discount to the current market value per-share for the purpose of raising capital. There are two main types of PIPE’s - traditional and structured. A traditional PIPE is one in which stock, either common or preferred, is issued at a set price to raise capital for the issuer. A structured PIPE, on the other hand, issues convertible debt (common or preferred shares).

Placement Agent. The broker-dealer who places securities in a private placement by arranging for the direct sale of a security to the purchaser. Unlike an underwriter, the placement agent does not purchase and then resell a security.

Pledging Receivables. The act of using accounts receivable as collateral for a loan.

Poison Pill. A corporate provision to combat a hostile takeover. When triggered, the poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover much more expensive.

Pooling of Interests. A method of accounting for mergers used prior to 2002. Under this method if certain technical requirements were present the financial statements of the companies were combined at their Book Values, the value of acquired assets was not restated and Goodwill was not created. The alternative was the Purchase Accounting method.

Portability. The ability to take the benefits promised by one company's pension plan and switch them to a second company's plan.

Portfolio. A group of securities held or owned for investment purposes by an individual or institutional investor. An investor's portfolio may contain common and preferred shares, bonds, options and other types of securities.

Post-Closing Adjustments. Post-closing adjustments represent increases or decreases to the sales price of a company based on amounts determinable only after the closing of the transaction. The acquisition agreement usually states expected post-closing adjustments and the method of calculating those adjustments.

Post-Closing Conditions. Conditions or events that occur after a transaction is completed. See also Post-Closing Adjustments and Earn Out.

Post-Money Value. The value of a company's equity immediately after a private securities offering. The post-money value is calculated by dividing the dollar amount invested in the securities by the percentage of the company owned by the new investors.

Power Of Attorney. Give signing authority for your affairs to a spouse or other trusted person in case of accident or other circumstances that leave you unable to manage your own affairs. This trusted person becomes your attorney. 

Preemptive Rights. An investor's right to purchase the investor's pro rata (i.e., proportionate) share of any additional securities issued by a company.

Preferred Share. A class of share capital that entitles its owners to certain preferences over common shareholders such as a fixed rate of prior dividend and return of the stock's par value in a liquidation. Preferred shares usually only have voting rights when their dividends are not being paid.  

Preferred Stock. A form of equity capital with attributes of both debt and equity, with variations including convertible preferred, redeemable preferred, and participating preferred. Preferred stock pays dividends like equity but like debt it has a priority over Common Stockholders in the payment of dividends and in the distribution of assets. Preferred stock usually has protective provisions, including affirmative and negative covenants, and the right to receive specified company financial and operating information.

Pre-Money Value. The value of a company's equity capital stock immediately prior to a securities offering. Derived by subtracting the amount of new funds invested in the company's offering from the Post-Money Value.

Premium. The amount paid to the option seller or writer for assuming the risk that he or she may have to buy (for puts) an underlying security for more than the market price or sell (for calls) at less than the market price. The amount by which a preferred stock or bond may sell above its par value. In the case of a new issue of bonds or stocks, premium is the amount the market price rises over the original selling price. May also refer to that part of redemption price of a bond or preferred stock in excess of par.

Prepaid Warrant. This is a warrant issued by an issuer entitling the holder to exercise into a specified number of different securities, for no additional financial consideration, during a specified time period.
 
Present Value. The current worth of an amount to be received in the future.

Pre-Tax Profit Margin. This is the fiscal year pre-tax earnings from Continuing Operations (not including discontinued extraordinary items) divided by the fiscal year revenues, expressed as a percentage.
 
Price/Book Ratio. A financial ratio in which a company's Market Value is divided by its reported Book Value.

Price/Cash Flow Ratio. A financial ratio in which a company's Market Value is divided by its cash flow from operations.

Price/Earnings Ratio. A financial ratio in which a company's Market Value is divided by its earnings.

Price/Sales Ratio. A financial ratio in which a company's Market Value is divided by its sales.

Price-To-Book Ratio. Shareholders' equity divided by the number of shares of stock outstanding.

Price- Earnings Ratio. The market price of a common stock divided by annual earnings per share. Also called P/E ratio or P/E multiple. For instance, if a company's net earnings amount to $1 million and it has one million shares outstanding, its earnings per share are one $1. If its shares are trading at $10, then its P/E ratio is 10 to 1. It indicates what investors are willing to pay for one year of a company's earnings per share.

Primary Offering. A sale of securities directly by a company from stock that was previously unissued. An Initial Public Offering (IPO) is frequently referred to as primary offering, even though it may involve the sale of securities by stockholders.

Primary Market: The market for raising the new Money.

Prime Rate. The interest rate at which banks lend to their best customers.

Primary Distribution. A new security issue, or one that is made available to investors for the first time.

Prime Interest Rate. The rate of interest charged by chartered banks to their most credit-worthy borrowers.

Principal. The person for whom a broker executes an order, or a dealer buying or selling for his own account. The term also may refer to a person's capital or to the face amount of a bond.

Private Equities. Described as equity securities of unlisted companies. Private equities are generally illiquid and thought of as a long-term investment. Private equity investments are not subject to the same high level of government regulation as stock offerings to the general public. Private equity is also far less liquid than publicly traded stock.

Private Investment in Public Equity (PIPE). This is a term used when a private investment or fund buys common stock for a company at a discount to the current market value per share.

Private Placement. A non-public distribution of securities in an offering that is exempt from the registration requirements of the Securities Act, usually to a limited number of sophisticated investors. Rule 506 Offerings are private placements that can be sold to an unlimited number of Accredited Investors. Put another way, it is the raising of capital via private rather than public placement. The result is the sale of securities to a relatively smaller number of investors. Private placements do not have to be registered with organizations such as the SEC because no public offering is involved.

Privately-Held Company. A company that has not sold any securities in a public offering, or otherwise become subject to the reporting requirements of the Securities Exchange Act. Businesses that have sold securities in a private placement generally remain private as long as there are limited number of outside securities holders.

Pro Forma. Financial statements that are adjusted to reflect a projected or recently completed transaction. For example, pro forma results are used to show the earnings that newly merged companies might have achieved had the merger occurred at the beginning of the reporting period. The term may be applied to income statements, balance sheets, and statements of cash flow. Pro forma quarterly results can sometimes be confusing, as they may exclude information such as certain stock-based employee compensation costs. In short, Pro Forma Financial Statements are financial statements as adjusted to reflect a projected or planned transaction.

Productivity. Broadly speaking, the efficiency with which people and capital are combined in the economy. Productivity is a measure relating a quantity or quality of output to the inputs required to produce it. Often means labor productivity, which is can be measured by quantity of output per time spent or numbers employed. Could be measured in, for example, U.S. dollars per hour. This is not a measure of how hard people work. A number of factors can cause labor productivity to change. For example, better education, training, management, equipment and technology will also tend to result in more production per worker.

Productivity Gains. Key to real improvements in our standard of living, because as our labor, capital, etc. Produce more, there is more to consume. 

Profit Margin. Determined by dividing Net Income by net sales and is expressed as a percentage.

Profit sharing. An employer-sponsored retirement plan that allows employees to share in company profits. The employer makes contributions in profitable years to individual employee accounts. The account grows until the employee retires or leaves the company.

Profit Taking. Selling to take a profit; the process of converting paper profits into cash.

Property, Plant, and Equipment (PP&E). The original cost of assets, less their accumulated depreciation. Often called fixed assets. Accounting does not normally use market prices, either selling prices or replacement costs, for fixed assets. Reasons may be that the company usually does not intend to sell these assets, so their market resale prices are not relevant; original cost is a verifiable, objective number, while market prices (selling or buying) fluctuate; and financial statements portray the stewardship of the managers, so it is natural to show how they spent the money entrusted to them by shareholders.

Prospectus. The disclosure section of a registration statement that is delivered to Investors in a public offering. The prospectus contains SEC-mandated narrative and financial information.

Public Company. A company that is subject to the reporting requirements of the 1934 Act by selling securities to the public in an Initial Public Offering or other offering. The 1934 Act governs the trading in the securities of a public company.

Public Company Comparable Analysis. A market-based valuation methodology in which current share prices of similar publicly traded companies are analyzed to determine the value of a private company. The method derives multiples, such as Price to Sales, Price to EBITDA and Price to EBIT, and then adjusts them for the differences in company size and private and public markets.

Public Float. The amount of common stock of a public company that is actually available for active trading in the public market. The calculation of public float normally excludes securities that cannot be sold by agreement with the security holder plus securities held by controlling shareholders or significant holdings by officers, directors and company affiliates.

Public Offering. A securities offering that has been registered with the Securities and Exchange Commission and is sold to the public usually by an Underwriting Syndicate.

Purchase Accounting. A Merger accounting method where the acquired assets and assumed liabilities of the acquired entity are written up or down to their respective fair market values as if purchased by the acquirer. The difference between the purchase price and the net assets acquired is classified as Goodwill. Alternatively see Pooling of Interest.

Purchase Fund. A method whereby the company purchases a stated number of shares each year, but only below par value. This helps to support the market price of the shares.

Purchase Price. The price paid for a security or asset. For preferred stock, the liquidation preference is generally equal to the purchase price plus any unpaid accumulated dividends.

Put. In options trading, a Put is the right to sell a specified number of shares of an investment instrument at a set price by a certain date. Investors buy puts when they believe the price of a security is going to go down (presumably below the strike price). Put another way, Put Rights are the right (but not the obligation) of a put holder to force the purchase of specific securities owned by the put holder. The put is usually at a designated time or period or upon a specified occurrence. The put price either is a fixed price or is set pursuant to an agreed pricing formula. A put right is the opposite of a Call Rights.