GlossaryG–18
standard deviation A measure of
volatility equal to the square root of
the variance.
standard normal distribution A normal
distribution with a mean of zero and a
standard deviation of 1.
stated annual rate The contractual
annual rate of interest charged by a
lender or promised by a borrower.
statutory merger A target integration
in which the acquirer can absorb
the target’s resources directly with
no remaining trace of the target as a
separate entity.
Stock Exchange Automated Trading
System (SEATS) The Internet-based
brokerage system operated by the ASX
to allow investors to buy and sell their
share orders electronically through
their brokers.
strategic plan A multi-year action
plan for the major investments
and competitive initiatives that a
company’s senior managers believe
will drive the future success of the
enterprise.
strike price The price at which an
option holder can buy or sell the
underlying asset.
subordinated bond A secured bond on
which the creditors’ claims are not
satisfied until the senior bondholders’
claims have been fully satisfied.
subordinated unsecured debt Debt
instruments issued by an entity which
is backed only by the credit of the
borrowing entity and which is paid
only after senior debt is paid.
subordination Agreement by all
subsequent or more junior creditors to
wait until all claims of the senior debt
are satisfied in full before having their
own claims satisfied.
subsidiary merger A merger in which
the acquirer maintains the identity of
the target as a separate subsidiary or
division.sunk costs Costs that have already
been paid and are therefore not
recoverable.
sustainable growth model Derives
an expression that determines how
rapidly a company can grow while
maintaining a balance between its
outflows (increases in assets) and
inflows (increases in liabilities and
equity) of cash.
swap contract Agreement between
two parties to exchange payment
obligations on two underlying
financial liabilities that are equal
in principal amount but differ in
payment patterns.
syndicated loan A large-denomination
credit arranged by a group (a
syndicate) of institutional lenders,
commonly commercial banks, for a
single borrower.
synergy A reduction in costs or
increase in revenues that results from
a merger.
systematic risk Risk that cannot be
eliminated through diversification.T
tailing the hedge Purchasing enough
futures contracts to hedge risk
exposure, but not so many as to cause
overhedging.
takeover A transaction in which the
control of one entity is taken over by
another.
takeover defences Means by which
a target thwarts or delays a takeover
attempt.
target cash balance A cash total that
is set for checking accounts to avoid
engaging in cash position management.
target dividend payout ratio A policy
under which a company attempts to pay
out a specified percentage of earnings
by paying a stated dollar dividend
adjusted slowly toward the target payout
as proven earnings increase.tax shield The ability to make an
interest deduction against income
before taxation is imposed protects,
or shields, the corporate profits from
taxation.
tender offer The structured purchase
of a target’s shares in which the
acquirer announces a public offer to
buy a minimum number of shares at a
specific price.
terminal value The value of all of a
project’s cash flows beyond a certain
date in the future.
term loan A loan made by an
institution to a business, with an
initial maturity of more than one year,
generally three to seven years.
term sheet An investment proposal
detailing all of the economic, control
and ownership terms – including
covenants – that is prepared and
presented to an entrepreneur by a
venture capitalist.
term structure of interest rates The
relationship between time to
maturity and yield to maturity for
bonds of equal risk.
time line A graphical representation of
cash flows over a given period of time.
time value The difference between
an option’s market price and its
intrinsic value.
time value of money Financial
concept that explicitly recognises that
$1 received today is worth more than
$1 received in the future.
times interest earned ratio A measure
of the company’s ability to make
contractual interest payments,
calculated by dividing earnings before
interest and taxes by interest expense.
top-down sales forecast A sales
forecast that relies heavily on
macroeconomic and industry forecasts.
total asset turnover A measure of
the efficiency with which a company
uses all its assets to generate sales;