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Capital rationing Placing one or more limits on the amount of new investment undertaken by a firm, either
by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital

Capital structure The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
the ratio of debt to equity and the mixture of short and long maturities.

Capital surplus Amounts of directly contributed equity capital in excess of the par value.

Capitalization The debt and/or equity mix that fund a firm's assets.

Capitalization method A method of constructing a replicating portfolio in which the manager purchases a
number of the largest-capitalized names in the index stock in proportion to their capitalization.

Capitalization ratios Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

Capitalization table A table showing the capitalization of a firm, which typically includes the amount of
capital obtained from each source - long-term debt and common equity - and the respective capitalization

Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
for items with useful lives greater than one year.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then
amortized through the income statement over time.

Car A loose quantity term sometimes used to describe a the amount of a commodity underlying one
commodity contract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a
contract used to correspond closely to the capacity of a railroad car.

CARDs Certificates of Amortized Revolving Debt. Pass-through securities backed by credit card receivables.

Carry Related:net financing cost.

Carring costs Costs that increase with increases in the level of investment in current assets.

Carrying value Book value.

CARs Certificates of Automobile Receivables. Pass-through securities backed by automobile receivables.

Cash The value of assets that can be converted into cash immediately, as reported by a company. Usually
includes bank accounts and marketable securities, such as government bonds and Banker's Acceptances. Cash
equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash budget A forecasted summary of a firm's expected cash inflows and cash outflows as well as its
expected cash and loan balances.

Cash and carry Purchase of a security and simultaneous sale of a future, with the balance being financed
with a loan or repo.

Cash and equivalentsThe value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's
Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash commodity The actual physical commodity, as distinguished from a futures contract.

Cash conversion cycle The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.

Cash cow A company that pays out all earnings per share to stockholders as dividends. Or, a company or
division of a company that generates a steady and significant amount of free cash flow.

Cash cycle In general, the time between cash disbursement and cash collection. In net working capital
management, it can be thought of as the operating cycle less the accounts payable payment period.

Cash deficiency agreement An agreement to invest cash in a project to the extent required to cover any cash
deficiency the project may experience.

Cash delivery The provision of some futures contracts that requires not delivery of underlying assets but
settlement according to the cash value of the asset.

Cash discount An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Cash dividend A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in
addition to the dividend.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Cash equivalent A short-term security that is sufficiently liquid that it may be considered the financial
equivalent of cash.

Cash flow In investments, it represents earnings before depreciation , amortization and non-cash charges.
Sometimes called cash earnings. Cash flow from operations (called funds from operations ) by real estate and
other investment trusts is important because it indicates the ability to pay dividends.

Cash flow after interest and taxes Net income plus depreciation.

Cash flow coverage ratio The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental
payments, and depreciation.

Cash flow from operations A firm's net cash inflow resulting directly from its regular operations
(disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing
securities), calculated as the sum of net income plus non-cash expenses that were deducted in calculating net

Cash flow matching Also called dedicating a portfolio, this is an alternative to multiperiod immunization in
which the manager matches the maturity of each element in the liability stream, working backward from the
last liability to assure all required cash flows.

Cash flow per common share Cash flow from operations minus preferred stock dividends, divided by the
number of common shares outstanding.

Cash flow time-line Line depicting the operating activities and cash flows for a firm over a particular period.

Cash-flow break-even point The point below which the firm will need either to obtain additional financing
or to liquidate some of its assets to meet its fixed costs.

Cash management bill Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.

Cash markets Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument. Related: derivative markets.

Cash offer A public equity issue that is sold to all interested investors.

Cash ratio The proportion of a firm's assets held as cash.

Cash settlement contracts Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.

Cash transaction A transaction where exchange is immediate, as contrasted to a forward contract, which
calls for future delivery of an asset at an agreed-upon price.

Cash-equivalent items Temporary investments of currently excess cash in short-term, high-quality
investment media such as treasury bills and Banker's Acceptances.

Cash-surrender value An amount the insurance company will pay if the policyholder ends a whole life
insurance policy.

Cashout Refers to a situation where a firm runs out of cash and cannot readily sell marketable securities.

CBOE Chicago Board Options Exchange. A securities exchange created in the early 1970s for the public
trading of standardized option contracts.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
CEDEL A centralized clearing system for eurobonds.

Certainty equivalent An amount that would be accepted in lieu of a chance at a possible higher, but
uncertain, amount.

Certificate of deposit (CD) Also called a time deposit, this is a certificate issued by a bank or thrift that
indicates a specified sum of money has been deposited. A CD bears a maturity date and a specified interest
rate, and can be issued in any denomination. The duration can be up to five years.

CFAT Cash flow after taxes.

CFTC The Commodity Futures Trading Commission is the federal agency created by Congress to regulate
futures trading. The Commodity Exchange Act of 1974 became effective April 21, 1975. Previously, futures
trading had been regulated by the Commodity Exchange Authority of the USDA.

Characteristic line The market model applied to a single security. The slope of the line is a security's beta.

Changes in Financial Position Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Chartists Related: technical analysts.

Cheapest to deliver issue The acceptable Treasury security with the highest implied repo rate; the rate that a
seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.

Chicago Mercantile Exchange (CME) A not-for-profit corporation owned by its members. Its primary
functions are to provide a location for trading futures and options, collect and disseminate market information,
maintain a clearing mechanism and enforce trading rules.

Chinese wall Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

Churning Excessive trading of a client's \ account in order to increase the broker's commissions.

Circle Underwriters, actual or potential, often seek out and "circle" investor interest in a new issue before
final pricing. The customer circled basically made a commitment to purchase the issue if it comes at an
agreed-upon price. In the latter case, if the price is other than that stipulated, the customer supposedly has first
offer at the actual price.

Circus swap A fixed rate currency swap against floating U.S. dollar LIBOR payments.

Claim dilution A reduction in the likelihood one or more of the firm's claimants will be fully repaid,
including time value of money considerations.

Claimant A party to an explicit or implicit contract.

Clean opinion An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.

Clean price Bond price excluding accrued interest.

Clear A trade is carried out by the seller delivering securities and the buyer delivering funds in proper form.
A trade that does not clear is said to fail.

Clear a position To eliminate a long or short position, leaving no ownership or obligation.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Clearing House Automated Payments System (CHAPS) A computerized clearing system for sterling funds
that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the
clearing companies within the structure of the Association for Payment Clearing Services (APACS).

Clearing House Interbank Payments System (CHIPS) An international wire transfer system for high-value
payments operated by a group of major banks.

Clearing member A member firm of a clearing house. Each clearing member must also be a member of the
exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of
a non-clearing member must be registered with, and eventually settled through, a clearing member.

Clearinghouse An adjunct to a futures exchange through which transactions executed its floor are settled by a
process of matching purchases and sales. A clearing organization is also charged with the proper conduct of
delivery procedures and the adequate financing of the entire operation.

Clientele effect The grouping of investors who have a preference that the firm follow a particular financing
policy, such as the amount of leverage it uses.

Close, the The period at the end of the trading session. Sometimes used to refer to closing price. Related:
Opening, the.

Closed-end fund An investment company that sells shares like any other corporation and usually does not
redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or
below its net asset value. Related: Open-end fund.

Closed-end mortgage Mortgage against which no additional debt may be issued.

Closing purchase A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.

Closing range Also known as the range. The high and low prices, or bids and offers, recorded during the
period designated as the official close. Related: settlement price.

Closing sale A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Cluster analysis A statistical technique that identifies clusters of stocks whose returns are highly correlated
within each cluster and relatively uncorrelated between clusters. Cluster analysis has identified groupings
such as growth, cyclical, stable and energy stocks.

Coefficient of determination A measure of the goodness of fit of the relationship between the dependent and
independent variables in a regression analysis; for instance, the percentage of variation in the return of an
asset explained by the market portfolio return.

Coinsurance effect Refers to the fact that the merger of two firms decreases the probability of default on
either firm's debt.

Collar An upper and lower limit on the interest rate on a floating-rate note.

Collateral Assets than can be repossessed if a borrower defaults.

Collateral trust bonds A bond in which the issuer (often a holding company) grants investors a lien on
stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.

Collateralized mortgage obligation (CMO) A security backed by a pool of pass-throughs , structured so that
there are several classes of bondholders with varying maturities, called tranches. The principal payments from
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in
the prospectus. Related: mortgage pass-through security

Collection float The negative float that is created between the time when you deposit a check in your account
and the time when funds are made available.


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