Financial Glossary


S

S Corporation. An ownership entity governed by the rules of Subchapter S of the Internal Revenue Code. Subchapter S allows a Corporation to be taxed as a Partnership and thus escape corporate income taxes (and Double Taxation) if the Corporation meets the subchapter S criteria and elects such tax treatment.

S-1. The most complete registration statement filed by a company with the SEC. An S-1 is used when shorter form registration statements are not available to a company either because the company's financial characteristics require an S-1 or because the company has not been a public company for at least one year. Shorter form registration statements such as Form SB-1 and Form SB-2 can be utilized by small business issuers for both primary and secondary offerings.

S-3. A registration statement that is shorter and less complete than an S-1 and is available to domestic issuers that have been a public company for at least one year and satisfy certain other requirements, particularly a significant public float. An S-3 is also referred to as a shelf registration and may be kept current for a period of two years by updating the financial statements and disclosing any material changes.

S-8. A registration statement filed by an issuer to register employee share purchases and including stock option plans.

Sale. The sale of a company's business either by sale of all, or substantially all, of the company's assets, by sale of all of its stock, or by merger.

Sales Charge. In the case of mutual funds, these are commissions charged to holder of fund units, usually based on the purchase or redemption price. Sales charges are also known as "loads."

Savings Rate. Personal savings expressed as a percentage of disposable income -- the income remaining after income taxes and payroll taxes are accounted for. The flow of personal savings adds to the stock of personal wealth.

Seasonal Adjustment. A statistical technique used to remove the effect of normal seasonal fluctuations in data so underlying trends become more evident. For example, the seasonally-adjusted unemployment rate smoothes out the changes in unemployment due to the typical seasonal hiring in the summer and layoffs in the winter for workers in industries such as agriculture and construction.

Second Stage Capital. This is often referred to as the capital provided to expand marketing and meet growing working capital need of an enterprise that has commenced production but does not have positive cash flows sufficient to take care of its growing needs.

Secondary Distribution. The redistribution to the public of a block of shares owned by an existing shareholder (not from the corporate treasury).

Secondary Offering. The sale of securities by a selling stockholder rather than by the company. The term is also used to describe public offerings of a company subsequent to the IPO, even though most or all of the securities are being sold by the company. Put another way, this refers to a public offering subsequent to an initial public offering. A secondary public offering can be either an issuer offering or an offering by a group that has purchased the issuer's securities in the public markets.

Secured Debt. Debt the repayment of which is secured because the borrower has provided collateral to the lender. Most loans from banks are secured loans in which the company has given as a security interest in its assets, including inventory, accounts receivable and machinery and equipment.

Secured Note. A note for which either real or personal property has been pledged or mortgaged.

Securities Act. The Securities Act of 1933, the federal statute that created the Securities and Exchange Commission and governs the original issuance of securities, including private placements, initial public offerings (IPOs), and exempt transactions.In short, legislation regulating the underwriting, distribution and sale of securities.

Securities Exchange Act of 1934. The 1934 Act is the federal statute governing the resale and market activities of securities, including the purchase of securities through proxy solicitations and tender offers and the securities exchanges. The 1934 Act details ongoing reporting requirements for public companies and certain stockholders, including those for annual (Form 10-K), quarterly (Form 10-Q) and other (Form 8-K) reports to stockholders.

Securities and Exchange Commission (SEC). A federal agency that regulates the United States financial markets and, among other things, promotes full disclosure and protection of the investing public against misrepresentation in the securities markets.

Securitization. A process under which non-marketable assets, such as mortgages, automobile leases and credit card receivables, are converted into marketable securities that can be traded among investors. This is a financing process in which a corporate entity moves assets to an ostensibly bankruptcy-remote vehicle to obtain lower interest rates from potential lenders--because the assets cannot be seized in a bankruptcy proceeding, the risk is less for lenders and they are willing to offer a lower rate. The technique comes under the umbrella of structured finance as it applies to assets that typically are illiquid contracts (i.e. assets that cannot easily be sold). Note: A securitization is simply off-balance sheet financing. A securitization has the net effect of selling an asset, picking up cash, and not creating a liability. All of your ratios will change on your balance sheet, in your favor, after a securitization is in place. If you are a public company, this will mean that anyone performing a financial analysis on your balance sheet will come up with better ratios.

Security. As technically defined by the SEC, any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Segregated Funds. These funds guarantee that, regardless how the fund performs, at least a minimum percentage (usually 75 per cent or more) of the investor's payments into the fund will be returned when the fund matures.

Selling Memorandum. The document prepared by a seller and its advisors that describes the business for sale including its history, products, markets, management, facilities, competition, financial statements, product literature, and a review of its prospects. See also Offering Document.

Senior Debt. Debt that has contractually superior rights compared to other debt of a company. The superior rights can be with respect to priority of payment of principal or interest, or both, as well as with respect to collateral in which the holders of both senior debt and junior debt have a security interest.

Series. A division of a class of securities. Preferred stock is a class of security that is frequently subdivided into separate series that are sold at different times and that have different liquidation rights, preferences, prices, voting rights or conversion rights.

Series A - Preferred Stock. The first round of stock offered to the venture capitalist in the early stages of a startup. This stock is convertible into common stock if the company goes public or is sold. As an enterprise grows and requires additional capital, the subsequent rounds of preferred stock issued to investors are called Series B, Series C and so on.

Service Corps of Retired Executives (SCORE). A nonprofit association dedicated to entrepreneur education and the formation, growth and success of small business nationwide. SCORE is a resource partner with the SBA.

Shares. A document signifying part ownership in a company. The terms "share" and"stock" are often used interchangeably.

Shares Outstanding. This is the number of shares of common stock currently outstanding. This is the number of shares issued minus the shares held in treasury. This field reflects all offerings and acquisitions for stock made after the end of the previous fiscal period.

Shareholders' Equity. The amount of a corporation's assets belonging to its shareholders (both common and preferred) after allowance for any prior claim.

Short-Term Interest Rates. Rates applying on money lent for a period of 10 years or more are called long-term rates. Those on money lent for a period of less than three years are considered short-term rates. Typically, long-term rates are higher than short-term rates because lenders want a higher return for tying up their money for a lengthy period.

Short Selling. The sale of a security made by an investor who does not own the security. The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price in order to deliver the securities earlier sold short.

Simplified Prospectus. An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares (see prospectus).

Sinking Fund. A method whereby a company purchases a given percentage of its bonds or shares as per agreement in the trust indenture or prospectus. This provides the investor with some degree of liquidity, knowing that the company must purchase shares each year. Specialty fund. A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.

Site Visit. A visit to the location of a business usually under taken as part of the Due Diligence process. This is an important part of the purchase process in the sale of a business and of the process by which under writer advisors prepare for an offering of securities by a company.

Small Business Administration (SBA). A federal agency that provides financial, technical and management assistance to help people start, run, and grow their businesses. Go to http://www.sba.gov/ for information on the SBA.

Small Business Investment Companies (SBIC).  SBIC's are licensed and regulated by the SBA to provide federal funding for small businesses. They may borrow funds from the government at low interest rates and prefer to use those funds for loans rather than equity so that the loan repayments from the small business can cover the cost of SBIC's borrowing from the government.

Small Cap Stock. Stock issued by a company with less than $500 million in market capitalization.Investment advisers sometimes recommend that investors interested in long-term growth invest in small cap stocks because they often they have the greatest potential for growth. However, these stocks tend to be relatively more volatile than stocks of larger companies and are less likely to pay dividends.

Sole Proprietorship. An ownership structure in which a single person is involved, does not constitute a separate legal entity nor provide any legal protection. Like a partnership, there is no taxation at the proprietorship level and taxes are levied on the individual's income from the sole proprietorship.

Speculative Stocks. High risk area of the market that provides only a handful of winners, but many losers.

Spin Out. A division or subsidiary of a company that becomes an independent business. Typically, private equity investors will provide the necessary capital to allow the division to “spin out” on its own; the parent company may retain a minority stake.

Splits. Splits occur when a company issues more shares to its stockholders (such as two shares for one), or in the case of a reverse split, issues fewer shares (such as one share for two). For example, suppose you own 100 shares of the stock YUP, and they are currently valued at $20 per share. If the stock undergoes a 2-for-1 split, you will have 200 shares of stock valued at $10 per share. (The value of the stock changes so that the current value of the holding stays the same at the time of the split.)

Spread. The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. Also, the difference between the bid and ask price for a security.

Standard & Poor's 500 Index
An index of 500 of the biggest publicly traded companies in the United States. The S&P 500 is generally thought of as the best measurement of the overall U.S. stock market. 

Standard Industrial Classification (SIC) Code. A numbering system established by the Office of Management and Budget that identifies companies by industry. See also NAICS.

Stock. A share of ownership, or equity, in a corporation. For example, if you buy 10,000 shares in a company with 1 million shares outstanding, you own 1 per cent of the company.

Stock Buy Back. When a company repurchases some of its shares.

Stock Dividend. A distribution to stockholders of a fraction of their shares in the form of stock. A stock dividend increases the number of shares outstanding but has no intensic economic value since each shareholder owns the same percentage of the company as before the dividend.

Stock Exchange. A public market for the buying and selling of public stocks.

Stock Options. Rights to purchase a corporation's stock at a specified price.

Stock Option Plan. A long-term performance incentive plan intended to align the interest of company employees and its stockholders by providing economic incentives to employees, directors, and consultants if a company performs well and the values of its shares increase to acquire common stock of the company at a fixed price and during a fixed term. Stock options are usually subject to vesting restrictions so that the option holder has an incentive to remain with the company for at least the vesting period in order to be able to exercise all of the options. Since options have value only if the stock price of the common stock that can be acquired increases, the option holder has an additional incentive, to help the company achieve operational and financial success. 

Stock-Oriented Mutual Funds. Mutual funds that are invested primarily in stocks. Balanced funds have both stocks and bonds in their portfolios, but for simplicity, you should include them here. Stock yield. the percentage of the dividend paid in relation to the price of the stock. For example, a stock selling at $40 a share with an annual dividend of $2 a share, yields 5 per cent.

Stop Order. An order to buy or sell a security if it reaches a specified price, known as the stop price.

Stop-Limit Order. An order to buy or sell a security at a certain price or better, only after it has reached the specified price.

Stop-Loss. An order to sell a security if it drops below the current market price.

Stock Purchase. A type of transaction in which the buyer purchases the shares of the target company, rather than an Asset Purchase in which the buyer purchases assets from the target company.

Stockholders' Equity. Accounting measure of the total of common stock, preferred stock, additional paid-in capital, and Retained Earnings. Represents the net Book Value of a company.

Straight-line Depreciation. A method of depreciation in which the depreciable cost of an asset is divided by the asset's useful life to determine the annual depreciation expense. Other forms of depreciation include sum of the years digits and double declining balance.

Strategic Acquisition. The purchase of an operating business that enhances the buyer's strengths or strengthens the buyer's weaknesses.

Strategic Alliance. An arrangement between two companies who have decided to share resources in a specific project. A strategic alliance is less involved than a joint venture where two companies typically pool resources in creating a separate entity.

Strike Price. In options trading, the strike price (also known as the exercise price) is the specified price for the investment instrument underlying a call or put. If the option is exercised, the underlying security is traded at the strike price. See Exercise Price.

Strip Bonds. The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.

Structural Change. A basic and permanent (as opposed to cyclical) change in the economy. Structural change results from changes in trading practices (e.g., because of technological advancement, changes in consumer behaviour, the emergence of new competitors and trade liberalization). It may take the form of changes in the relative importance of particular industries, in the economic strength of regions, and in the occupational or skill mix of the labour force.

Subordinated Debenture. A bond which ranks lower in priority than another debenture.

Subordinated Debt. Debt securities (also referred to as junior debt) that have granted superior rights in favor of another lender to the company (also called senior debt).The superior rights can be with respect to relative rights to receive payment of principal or interest (or both) or sharing rights with respect to collateral. The most universal feature of subordinated debt is that on a sale or liquidation of a company, the senior debt is repaid in full prior to any payments on the subordinated debt. Frequently, if the senior debt is in default, the senior lender has the right to receive payment of principal and interest prior to the lender on the junior debt. The senior lender may stop the company from making any payments on the subordinated debt until the senior debt is no longer in default. The precise terms of the subordination and the relative rights of the senior debt and junior debt are agreed to contractually and are the subject of significant negotiation and variation.

Subsidy. A financial contribution by government (including any form of income or price support) that also confers a benefit to the recipient (i.e., producers of goods or services or buyers of goods). Many types of government practices constitute a financial contribution, including traditional forms of subsidies such as grants and loans, as well as foregone revenues such as tax credits. Subsidies may also exist in preferential government procurement of goods.

Surtax. An additional tax levied as a percentage of an income tax amount. Both individuals and corporations pay surtaxes in addition to their base amount of federal tax.

Swap. A swap is a contract whereby two counterparties agree to a periodic exchange of cash flows for a given period of time based of a specified notional amount of principal. In an interest rate swap, the cash flows are denominated in the same currency. In a currency swap, the cash flows are in different currencies.

Syndicate. A group of investment dealers who join together to underwrite a share issue.