Pro forma financial statements

Similar financial terms

Put provision on bonds
A put provision grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. Here the advantage to the investor is that if interest rates rise after the issue date, thereby reducing a bond’s price, the investor can force the issuer to redeem the bond at par value.

Agency problem
The conflict of interest between principal (e.g. shareholders) and agent (e.g. managers) in which agents have an incentive to act in their own self-interest because they bear less than the total costs of their actions.

Wiener Process
The wiener process is a stochastic process used in option value calculations where the change in a variable during each short period of time of length has a normal distribution with a mean equal to zero and a variance equal to length.

Stochastic process
An equation describing the probabilistic behavior of a stochastic variable.

Hard call protection
Hard call protection usually refers to callable bonds. The protection is the period of time when the bond cannot be called, no matter what the interest rate is. That is, if the interest rate falls sharply, most callable bonds will be called (so the bond issuer can reissue at a lower interest rate). Hard call protection ensures that the holder of the bond can benefit when rates fall.

Gross profit
The profit remaning after direct costs are subtracted from sales, but before any expenses are deducted.

Zero-one integer programming
An analytical method that can be used to determine the solution to a capital rationing problem.

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

Variance minimization approach to tracking
An approach to bond indexing that uses historical data to estimate the variance of the tracking error.

Underinvestment problem
The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.

Tandem programs
Under Ginnie Mae, mortgage funds provided at below-market rates to residential mortgage buyers with FHA Section 203 and 235 loans and to developers of multifamily projects with Section 236 loans initially and later with Section 221(d)(4) loans.

Subjective probabilities
Probabilities that are determined subjectively (for example, on the basis of judgement rather than using statistical sampling).

Stratified sampling approach to indexing
An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration or maturity.

Sole proprietorship
A business owned by a single individual. The sole proprietor pays no corporate income tax but has unlimited liability for business debts and obligations.

Signaling approach
Approach to the determination of the optimal capital structure asserting that insiders in a firm have information that the market does not have; therefore, the choice of capital structure by insiders can signal information to outsiders and change the value of the firm. This theory is also called the asymmetric information approach.

Simple prospect
An investment opportunity where a certain initial wealth is placed at risk and only two outcomes are possible.

Separation property
The property that portfolio choice can be separated into two independent tasks: (a) determination of the optimal risky portfolio, which is a purely technical problem, and (b) the personal choice of the best mix of the risky portfolio and the risk-free asset.

Risk premium approach
The most common approach for tactical asset allocation to determine the relative valuation of asset classes based on expected returns.

Risk prone
Willing to pay money to transfer risk from others.

Risk-adjusted profitability
A probability used to determine a "sure" expected value (sometimes called a certainty equivalent) that would be equivalent to the actual risky expected value.

Residual dividend approach
An approach that suggests that a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.

Reproducible assets
A tangible asset with physical properties that can be reproduced, such as a building or machinery.

Replacement-chain problem
Idea that future replacement decisions must be taken into account in selecting among projects.

Regulatory accounting procedures
Accounting principals required by the FHLB that allow S&Ls to elect annually to defer gains and losses on the sale of assets and amortize these deferrals over the average life of the asset sold.

Quadratic programming
Variant of linear programming whereby the equations are quadratic rather than linear.

Put provision
Gives the holder of a floating-rate bond the right to redeem his note at par on the coupon payment date.

Proxy vote
Vote cast by one person on behalf of another.

Proxy contest
A battle for the control of a firm in which the dissident group seeks, from the firm's other shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors. Also called proxy fight.

Proxy
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.

Provisional call feature
A feature in a convertible issue that allows the issuer to call the issue during the non-call period if the price of the stock reaches a certain level.

Protective put buying strategy
A strategy that involves buying a put option on the underlying security that is held in a portfolio.

Protective covenant
A part of the indenture or loan agreement that limits certain actions a company takes during the term of the loan to protect the lender's interests.

Protectionism
Protecting domestic industry from import competition by means of tariffs, quotas, and other trade barriers.

Prospectus
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe the fund objectives, risks and other essential information.

Property rights
Rights of individuals and companies to own and utilize property as they see fit and to receive the stream of income that their property generates.

Promissory note
Written promise to pay.

Projected maturity date
With CMOs, final payment at the end of the estimated cash flow window.

Projected benefit obligation (PBO)
A measure of a pension plan's liability at the calculation date assuming that the plan is ongoing and will not terminate in the foreseeable future.

Project financing
A form of asset-based financing in which a firm finances a discrete set of assets on a standalone basis.

Project notes (PNs)
Project notes are issued by municipalities to finance federally sponsored programs in urban renewal and housing and are guaranteed by the US Department of Housing and Urban Development.

Project loans
Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes, nursing homes, hospitals, and other development types.

Project loan securities
Securities backed by a variety of FHA-insured loan types - primarily multi-family apartment buildings, hospitals, and nursing homes.

Project loan certificate (PLC)
A primary program of Ginnie Mae for securitizing FHA-insured and coinsured multifamily, hospital, and nursing home loans.

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.

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

Program trading
Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically.

Program trades
Also called basket trades, orders requiring the execution of trades in a large number of different stocks at as near the same time as possible.

Profitability ratios
Ratios that focus on the profitability of the firm. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.

Profitability index
The present value of the future cash flows divided by the initial investment. Also called the benefit-cost ratio.

Profit margin
Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.

Production-flow commitment
An agreement by the loan purchaser to allow the monthly loan quota to be delivered in batches.

Production payment financing
A method of nonrecourse asset-based financing in which a specified percentage of revenue realized from the sale of the project's output is used to pay debt service.

Product risk
A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or inventory but does not have a sale commitment at a prearranged price.

Product cycle
The time it takes to bring new and/or improved products to market.

Probability function
A function that assigns a probability to each and every possible outcome.

Probability distribution
Also called a probability function, a function that describes all the values that the random variable can take and the probability associated with each.

Probability density function
The probability function for a continuous random variable.

Probability
The relative likelihood of a particular outcome among all possible outcomes.

Pro forma statement
A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows.

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.

Price discovery process
The process of determining the prices of the assets in the marketplace through the interactions of buyers and sellers.

Preliminary prospectus
A preliminary version of a prospectus.

Planned financing program
Program of short-term and long-term financing as outlined in the corporate financial plan.

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

Optimization approach to indexing
An approach to indexing which seeks to optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.

Optimal redemption provision
Provision of a bond indenture that governs the issuer's ability to call the bonds for redemption prior to their scheduled maturity date.

Operating profit margin
The ratio of operating margin to net sales.

NPV profile
A graph of NPV as a function of the discount rate.

Normal probability distribution
A probability distribution for a continuous random variable that is forms a symmetrical bell-shaped curve around the mean.

Non-reproducible assets
A tangible asset with unique physical properties, like a parcel of land, a mine, or a work of art.

Net profit margin
Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid.

Modigliani and Miller Proposition II
A proposition by Modigliani and Miller which states that the cost of equity is a linear function of the firm's debt/equity-ratio.

Modigliani and Miller Proposition I
A proposition by Modigliani and Miller which states that a firm cannot change the total value of its outstanding securities by changing its capital structure proportions. Also called the irrelevance proposition.

Mathematical programming
An operations research technique that solves problems in which an optimal value is sought subject to specified constraints. Mathematical programming models include linear programming, quadratic programming, and dynamic programming.

Linear programming
Technique for finding the maximum value of some equation subject to stated linear constraints.

American Production and Inventory Control Society
American Production and Inventory Control Society (APICS) is a not-for-profit international educational organization respected throughout the world for its education and professional certification programs.

A lick and a promise
Incomplete or limited preparation

Intellectual Property
This terms refers to all assets of a company that have an intellectual nature to them. They are often referred to as "soft" assets such as trademarks, logos, patents, software, trade secrets, brands, industrial designs, music, colors, designs, etc. They usually have intangible value unlike hard assets such as land, buildings, and equipment.

Base probability of loss
The probability of not achieving a portfolio expected return.

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

Book profit
The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.

Call protection
A feature of some callable bonds that establishes an initial period when the bonds may not be called.

Call provision
An embedded option granting a bond issuer the right to buy back all or part of the issue prior to maturity.

Conventional project
A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows).

Corporate processing float
The time that elapses between receipt of payment from a customer and the depositing of the customer's check in the firm's bank account; the time required to process customer payments.

Cross-sectional approach
A statistical methodology applied to a set of firms at a particular point in time.

Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.

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.

Automatic Data Processing (ADP)
A private company that acts as an intermediary to perform proxy services for several banks and brokers. Distributes proxy material to beneficial owners, tabulates the returned proxies, and provides the Corporation or its tabulator compiled reports of the tabulation results. ADP also distributes quarterly reports and other corporate information to the beneficial owners.

Affordability programs
Usually refers to special schemes set up and/or managed by utility companies which are designed to minimize the burden of utility costs for customers of limited means. These programs are usually targetted at specific classes of low-income residential consumers (e.g. unemployed or pensioners) and institutional customers (e.g. schools, non-profit organizations, hospitals and other essential public-sector services).

Benefits provided by these programs can include forgiveness of arrearage ...

Net national product
The technical term for national income, it is GNP minus capital consumption.

Lean production
Lean production is a range of management techniques that aim to make business more efficient in its use of resources. This minimises waste, reduces costs, increases productivity and should expand margins.

Asset Protection Trust (APT)
A special form of irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting part of one's wealth offshore against creditors. Title to the asset is transferred to a person named the trustee. Generally used for asset protection and usually tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.

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.

Probate
The legal process for the distribution of the estate of a decedent.

The Securities Industry Protection Corporation
Commonly named the SIPC. Provides up to $500,000 insurance protection for your U.S. stock brokerage account.

Profit and Loss Account
An accounting statement that shows a company's trading position over a given period of time - usually the financial year. This statement details the sales revenue and business expenditure over the period. In the account, the cost of sales is deducted from the sales income to provide a gross profit. From this, other items of expenditure, such as salaries, rent, rates and other itemised costs are deducted to show a net profit (or loss). In US and under IFRS known as the Income Statement.

Proforma
This term is normally used in connection with invoices, whereby a company issues a pro-forma invoice in advance of services or goods being provided to speed up payment. Small, new companies are often asked to pay for goods or services in advance as security against non-payment. In these instances, the service or goods provider raises a pro-forma invoice.

Proxy fight
A hostile takeover technique that may occurs when the acquiring company attempts to convince shareholders to use their proxy votes to install new management that is open to the takeover. The technique allows the acquired to avoid paying a premium for the target.

Dual track process
A process where the seller of a company postpones the decision of doing an IPO or trade sale. The divestment method that yields the most value (adjusted for execution risks) is chosen prior to the official listing notification (application) to the stock exchange

Performance Related Pay
Performance Related pay is a remuneration system whereby the employee's pay is based on his or her performance. It is basically a payments by results system that is designed to give incentive to the employee to work harder or more productively. In its simplest form, this may be an annual bonus based on subjective assessment of performance. In many larger organisations this can be more structured, based on a set of pre-agreed objectives or targets. Performance related pay is becoming increasingly ...

Performance shares
Shares of stock given to managers on the basis of performance as measured by earnings per share and similar criteria. A control device used by shareholders to tie management to the self-interest of shareholders.

Performance measurement
The calculation of the return realized by a money manager over some time interval.

Performance evaluation
The evaluation of a manager's performance which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return (performance attribution analysis).

Performance attribution analysis
The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer the following questions: (a) What were the major sources of added value? (b) Was short-term factor timing statistically significant? (c) Was market timing statistically significant? And (d), Was security selection statistically significant?

American Standard Code for Information Interchange
American Standard Code for Information Interchange (ASCII) is the most common format for text files in computers and on the internet.

BARRA's performance analysis (PERFAN)
A method developed by BARRA, a consulting firm in Berkeley, California. It is commonly used by institutional investors applying performance attribution analysis to evaluate their money managers' performances.

Statement of Financial Accounting Standards No. 52
This is the currency translation standard currently used by U.S. firms. It mandates the use of the current rate method.

Statement of Financial Accounting Standards No. 8
This is a currency translation standard previously in use by U.S. accounting firms.

Short-term financial plan
A financial plan that covers the coming fiscal year.

Perfectly competitive financial markets
Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by the following conditions: a) trading is costless, and access to the financial markets is free, b) information about borrowing and lending opportunities is freely available, c) there are many traders, and no single trader can have a significant impact on market prices.

Notes to the financial statements
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.

Non-financial services
Include such things as freight, insurance, passenger services, and travel.

Long-term financial plan
Financial plan covering two or more years of future operations.

London International Financial Futures Exchange
London International Financial Futures Exchange (LIFFE) is a London exchange where Eurodollar futures as well as futures-style options are traded.

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.

Corporate financial management
The application of financial principals within a corporation to create and maintain value through decision making and proper resource management.

Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both long- and short-term financial plans.

Country financial risk
The ability of the national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt.

Financial Institutions Reform (FIRREA)
In August of 1989 the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) was created. FIRREA abolishes the Federal Home Loan Bank Board and FSLIC, switches Savings & Loan regulation to newly created Office of Thrift Supervision. Deposit insurance function shifted to the FDIC. A new entity, the Resolution Trust Corporation is created to resolve the insolvent S&Ls.

Other major provisions of FIRREA include: $50 billion of new borrowing authority, with most financed from ...

Financial Services Authority (FSA)
The Financial Services Authority was created by the incoming UK Labor Government in 1997 as the regulatory body for the whole financial services industry. A number of separate regulatory bodies were brought together into the FSA. The FSA also took over the responsibilities that the Bank of England had for supervising banks and other financial institutions. The Chairman of the FSA is Howard Davies, an ex deputy governor of the Bank, and now a member of the Court of Directors. The Bank and the FSA ...

Financial economies of scale
The ability of large firms to borrow money on more favourable terms than small firms.

Financial intermediaries
Institutions which channel funds from people and institutions wishing to lend to those wishing to borrow.

International Financial and Banking Centre (IFC)
A country identified as being a tax haven.