GlossaryTakeover A business amalgamation where one busi-
ness buys sufficient shares in another business to
control it. Also known as merger. (p. 388)
Tax shield The value of the asset of the tax benefit of
using loans in the long-term finance of the business.
(p. 305)
Technical analysis The use of technical rules and
charts of past security price movements to spot
profitable investment opportunities. (p. 260)
Term loans Loans, typically by a bank or similar
institution, usually for a specified period of time.
(p. 241)
Trade-off theory A theory of capital/financial gear-
ing that holds that determining the optimum level of
gearing requires that a balance is struck between the
value of the tax shield, on the one hand, and poten-
tial bankruptcy cost, on the other. (p. 313)
Transaction risk The risk that buying or selling a
product or service priced in a foreign currency will
lead to losses because of an adverse shift in exchange
rates between the time of the transaction and the
payment or receipt of the foreign currency. (p. 419)
Translation risk The risk that the value of assets held
overseas may reduce, in terms of the home currency,
as a result of an adverse shift in the exchange rate.
(p. 424)
Two-fund separation The notion that all rational
risk-averse investors will choose to invest only in
a risk-free investment and the market portfolio.
(p. 197)
Unadjusted rate of return SeeAccounting rate of
return. (p. 97)Unsecured creditors People or organisations owed
money under a contract that links the obligation with
the general assets of the borrower, rather than with
a particular one. (p. 15)
Utility Personal satisfaction from some desirable
factor. (p. 36)
Value drivers The factors that are seen in shareholder
value analysis as being key in generating shareholder
value. (p. 138)
Variance A statistical measure of the dispersion of
individual outcomes about their mean or expected
value; it is the square of the standard deviation.
(p. 186)
Venture capital Equity finance provided to support
new, expanding and entrepreneurial businesses.
(p. 442)
Warrants Options, granted by a business, that entitle
the holder to subscribe for a specified quantity of
(usually) ordinary shares, for a specified price, on
or after a specified date. (p. 240)
Weak-form capital market efficiency A situation
where security prices, at all times, reflect all informa-
tion about the securities concerned implied by their
past price movements. (p. 259)
Weighted average cost of capital The average cost
of capital for a business, being the average of the
costs of the various constituents of capital (such as
shares and loan notes), weighted by the market value
of each constituent. (p. 274)
Working capital Short-term assets, net of short-term
liabilities. (p. 113)
Z-score A measure of the potential for a business to
survive rather than fail due to financial inadequacies.
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