Personal tax view (of capital structure)

Similar financial terms

Personal trust
An interest in an asset held by a trustee for the benefit of another person.

Withholding tax
The tax payable on payments such as dividends, interest, and debt repayments which are sent to foreign entities. Hence, a tax levied by the country of source on income paid.

After-tax profit margin
The ratio of net income to net sales.

After-tax real rate of return
Money after-tax rate of return minus the inflation rate.

Value-added tax
Value-added tax (VAT) is a method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.

Two-tier tax system
A method of taxation in which the income going to shareholders is taxed twice.

Taxable transaction
Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

Taxable income
Gross income less a set of deductions such as allowances, deeds of covenants, and losses.

Taxable acquisition
A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are treated as having sold their shares.

Tax-timing option
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and defer the capital gains tax.

Tax-deferred retirement plans
Employer-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits.

Tax deferral option
The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is payable only when the gain is realized by selling the asset.

Tax swap
Swapping two similar bonds to receive a tax benefit.

Tax shield
The reduction in income taxes or corporation taxes that results from taking an allowable deduction from taxable income.

Tax Reform Act of 1986
A 1986 law involving a major overhaul of the U.S. tax code.

Tax haven
A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting or investing. Offshore centres are often established in so-called tax havens.

Tax free acquisition
A merger or consolidation in which (a) the acquirer's tax basis in each asset whose ownership is transferred in the transaction is generally the same as the acquiree's, and (b) each seller who receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax-exempt sector
The municipal bond market where state and local governments raise funds. Bonds issued in this sector are exempt from federal income taxes.

Tax differential view ( of dividend policy)
The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back to the extent required to cover any cash deficiency of the project.

Tax books
Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's books follow Financial Accounting Standards Board rules.

Split-rate tax system
A tax system that taxes retained earnings at a higher rate than earnings that are distributed as dividends.

Short-term tax exempts
Short-term securities issued by states, municipalities, local housing agencies, and urban renewal agencies.

Progressive tax system
A tax system wherein the average tax rate increases for some increases in income but never decreases with an increase in income.

Marginal tax rate
The tax rate that would have to be paid on any additional dollars of taxable income earned.

Limited-tax general obligation bond
A general obligation bond that is limited as to revenue sources.

Tax Breaks
Tax Breaks or "incentives" are advocated by the high tech industry - especially on stock options - as one way to help stem the brain drain. Another form of break is an investment tax credit to encourage investment or an R&D credit to encourage companies to undertake more R&D. It is a means for governments to stimulate growth in certain economic activities.

Before-tax profit margin
The ratio of net income before taxes to net sales.

Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering into and not entering into the transaction.

Cash flow after interest and taxes
Net income plus depreciation.

Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.

Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to maturity that the premium or discount bond quoted would.

Regressive tax
A tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens. Examples: a poll tax, a flat percentage tax on only the first so many dollars of income (like the social security / national insurance contribution) or a sales tax on consumption items of common necessity (like groceries).

Progressive tax
A tax that tends to take a smaller percentage of the incomes of lower income citizens compared to the percentage it takes of the incomes of wealthier citizens. Example: an income tax with steeper rates for those in higher income brackets, or a special sales tax levied only on expensive "luxuries" like Philippe Patek watches or Mercedes-Benz sport cars.

Foreign Investor in Real Property Tax Act of 1980
Under FIRPTA (Foreign Investor in Real Property Tax Act of 1980), and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.

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.

Agency cost view
The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.

Traditional view (of dividend policy)
An argument that "within reason," investors prefer large dividends to smaller dividends because the dividend is sure but future capital gains are uncertain.

Taking a view
A London expression for forming an opinion as to where market prices are headed and acting on it.

Signaling view (on dividend policy)
The argument that dividend changes are important signals to investors about changes in management's expectation about future earnings.

Progress review
A periodic review of a capital investment project to evaluate its continued economic viability.

Perfect market view (of dividend policy)
Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market.

Perfect market view (of capital structure)
Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market.

Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, new debt is next, debt-equity hybrids are next, and new equity is the least preferred source.

Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy view
The argument that expected bankruptcy costs preclude firms from being financed entirely with debt.

Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of asymmetric information, asymmetric taxes, and transaction costs.

Capital stock
The value of an outstanding share of stock at the time it was issued

Capitalization
The combined sources of capital, consisting of dept capital (liabilities) and equity capital (capital stock and retained earnings).

Working capital ratio
Working capital expressed as a percentage of sales.

Working capital management
The management of current assets and current liabilities to maximize short-term liquidity.

Working capital
Defined as the difference in current assets and current liabilities (excluding short-term debt). Current assets may or may not include cash and cash equivalents, depending on the company.

Weighted average cost of capital
The weighted average cost of capital (WACC) is the expected return on a portfolio of all the firm's securities when debt, equity and tax shields are taken into account. Used as a hurdle rate for capital investment.

Venture capital
An investment in a start-up business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Static theory of capital structure
Theory that the firm's capital structure is determined by a trade-off of the value of tax shields against the costs of bankruptcy.

Soft Capital Rationing
Capital rationing that under certain circumstances can be violated or even viewed as made up of targets rather than absolute constraints.

Real capital
Wealth that can be represented in financial terms, such as savings account balances, financial securities, and real estate.

Pro forma capital structure analysis
A method of analyzing the impact of alternative capital structure choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will be able to use projected tax shield benefits fully.

Planned capital expenditure program
Capital expenditure program as outlined in the corporate financial plan.

Pie model of capital structure
A model of the debt/equity ratio of the firms, graphically depicted in slices of a pie that represent the value of the firm in the capital markets.

Perfect capital market
A market in which there are never any arbitrage opportunities.

Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.

Other capital
In the balance of payments, other capital is a residual category that groups all the capital transactions that have not been included in direct investment, portfolio investment, and reserves categories. It is divided into long-term capital and short-term capital and, because of its residual status, can differ from country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a year or more like bank loans and mortgages. Other short-term capital i ...

Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in comparable financial securities.

Nondiversifiability of human capital
The difficulty of diversifying one's human capital (the unique capabilities and expertise of individuals) and employment effort.

Net working capital
Current assets minus current liabilities. Often simply referred to as working capital.

Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firm's cash flows.

Market capitalization
The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.

Long-term debt/capitalization
Indicator of financial leverage. Shows long-term debt as a proportion of the capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and common stockholder equity.

Legal capital
Value at which a company's shares are recorded in its books.

Capital
Money invested in a firm.

Capital account
Net result of public and private international investment and lending activities.

Capital allocation decision
Allocation of invested funds between risk-free assets versus the risky portfolio.

Capital budget
A firm's set of planned capital expenditures.

Capital budgeting
The process of choosing the firm's long-term capital assets.

Capital Builder Account (CBA)
A Merrill Lynch brokerage account that allows investors to access the loan value of his or her eligible securities to buy or sell securities. Excess cash in a CBA can be invested in a money market fund or an insured money market deposit account without losing access to the money.

Capital expenditures
Amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.

Capital flight
The transfer of capital abroad in response to fears of political risk.

Capital gain
When a stock is sold for a profit, it's the difference between the net sales price of securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

Capital gains yield
The price change portion of a stock's return.

Capital lease
A lease obligation that has to be capitalized on the balance sheet.

Capital loss
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

Capital market
The market for trading long-term debt instruments (those that mature in more than one year).

Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient capital market allows the transfer of assets with little wealth loss.

Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.

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 budget.

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 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 ratios.

Capitalized
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives greater than one year.

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.

Complete capital market
A market in which there is a distinct marketable security for each and every possible outcome.

Cost of capital
The required return for a capital budgeting project.

Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.

Authorised capital
The maximum amount of share capital that a public limited company or a private limited company can issue according to its articles of association. Part of the authorised capital can remain unissued.

Basel II (Basel Capital Accord)
Basel II - short for the new Basel Capital Accord - lays down new guidelines for determining the minimum solvency requirements for banks. The main change in these guidelines is a new system for weighting the risks run by banks in their loans to retail and corporate customers. The objective of Basel II is to improve the soundness of the financial system.

Capital coverage ratio
Available capital divided by required capital.

Risk-adjusted return on capital (RAROC)
Measures performance on a risk-adjusted basis. Calculated as the economic return divided by economic capital. RAROC helps determine if a company has the right balance between capital, returns and risk. The central concept in RAROC is economic capital: the amount of capital a company should put aside needed based on the risk it runs.

Flight Capital
Money that flows offshore and likely never returns. Flight is exacerbated by a lack of confidence as government grows without bounds.

Risk Capital
Money put up by ordinary shareholders, an individual entrepreneur or venture capitalist that will be lost if the enterprise fails.