MAS: Terminologies on Capital Structure 11.

Floating rate bond: are bonds that have

A. Long-Term Debt: consists of loans and a variable coupon, equal to a money
financial obligations lasting over one year. market reference rate.
I. SOURCES OF DEBT 12. Registered bond: is a bond whose owner
1. Public Debt: defined as how much a is registered with the bond's issuer.
country owes to lenders outside of itself. 13. Junk bond: refers to high-yield or
noninvestment-grade bonds.
2. Private debt: is the debt accumulated by
IV. BOND YIELDS
individuals or private businesses.
1. Coupon rate: is the yield paid by a fixed-
II. DEBT COVENANTS AND PROVISIONS
income security, annual coupon payments
1. Debt covenants: is a promise in an
paid by the issuer relative to the bond's face
indenture, or any other formal debt
or par value.
agreement, that certain activities will or
2. Current Yield: is a bond's annual return
will not be carried out; loan document
based on its annual coupon payments and
2. Security provisions: a legal clause or
current price.
condition contained within a contract that
3. Yield to maturity: is the total return
requires one or both parties to perform a
anticipated on a bond of the bond is held
particular requirement by some specified
until the end of its lifetime.
time or prevents one or both parties from
V. LEASE AS FORM OF FINANCING
performing a particular requirement by
1. Capital Lease/Finance Lease: is a lease
some specified time.
agreement in which the lessor agrees to
III.TYPES OF BONDS (DEBT SECURITIES)
transfer the ownership rights to the lessee
1. Mortgage bond: is a bond secured by a
after the completion of the lease period.
mortgage or pool of mortgages.
2. Operating Lease: is a contract wherein the
2. Collateral trust bond: is a bond that is
owner, called the Lessor, permits the user,
secured by a financial asset - such as stock
called the Lesse, to use of an asset for a
or other bonds - that is deposited and held
particular period which is shorter than the
by a trustee for the holders of the bond.
economic life of the asset without any
3. Debenture bond: s a type of debt
transfer of ownership rights.
instrument that is not secured by physical
3. Sale and leaseback: is a financial
assets or collateral.
transaction in which one sells an asset and
4. Subordinated debenture: is a loan or
leases it back for the long term; therefore,
security that ranks below other loans and
one continues to be able to use the asset
securities with regard to claims on a
but no longer owns it.
company's assets or earnings.
B. Equity
5. Income bond: is a type of debt security in
I. EQUITY SECURITIES
which only the face value of the bond is
1. Common Stock: is a security that
promised to be paid to the investor, with
represents ownership in a corporation.
any coupon payments being paid only if the
2. Preferred stock: is a class of ownership in
issuing company has enough earnings to
a corporation that has a higher claim on its
pay for the coupon payment.
assets and earnings than common stock.
6. Serial bond: is a bond issue that is
3. Stock Warrants: is a security that entitles
structured so that a portion of the
the holder to buy the underlying stock of
outstanding bonds mature at regular
the issuing company at a fixed price called
intervals until all of the bonds have
exercise price until the expiry date.
matured.
II. FEATURES OF STOCKS
7. Term bond: refers to bonds from the
1. Redeemability: able to be converted into
same issue that share the same maturity
ready money or the equivalent, capable of
dates. Have a call feature can be redeemed
being exchanged for or replaced by
at an earlier date than the other issued
something of equal value.
bonds.
2. Conversion: act or process of changing
8. Convertible bond: is a type of bond that
from one form or state to another.
the holder can convert into a specified
3. Call Feature: of a convertible issue that
number of shares of common stock in the
allows the issuer to call the issue during the
issuing company or cash of equal value.
non-call period if the stock reaches a certain
9. Redeemable or callable bond: is a type
price.
of bond that allows the issuer of the bond
4. Participation:
to retain the privilege of redeeming the
5. Floating rate: also known as a variable or
bond at some point before the bond
adjustable rate, refers to any type of debt
reaches its date of maturity.
instrument, such as a loan, bond, mortgage,
10. Zero corporate bond: zero coupon or
or credit,that does not have a fixed rate of
accrual bond, is a debt security that
interest over the life of the instrument.
doesn't pay interest (a coupon) but is
III.OTHER TERMINOLOGIES ON EQUITY
traded at a deep discount, rendering profit
1. Spin-offs: is the creation of an
at maturity when the bond is redeemed for
independent company through the sale or
its full face value.
 distribution of new shares of an existing
business or division of a parent company.
2. Trading Stocks:
3. Venture Capital: money provided by
investors to startup frims for long-term
growth potential.
4. Going pubic: initial public offering (IPO)
5. Going private: is a transaction or a series
of transactions that convert a publicly
traded company into a private entity,
shareholders are no longer able to trade
their stocks in the open market.
IV. SHARE-BASED PAYMENT (SBP)
1. Employee stock ownership plan
(ESOP): is a qualified defined-contribution
employee benefit (ERISA) plan designed to
invest primarily in the stock of the
sponsoring employer.
2. Forms of SBP under IFRS 2
V. DIVIDEND POLICY
1. Stock dividends: defined as a payment
made by a corporation to its shareholders.
Usually these payouts are made in cash, but
sometimes companies will also distribute
stock dividends, whereby additional stock
shares are distributed to shareholders.
2. Cash dividends: is money paid to
stockholders, normally out of the
corporation's current earnings or
accumulated profits.
3. Dividend policies in relation with
business life cycle (development,
growth, expansion, maturity)
4. Classes of Preferred stock as to
dividends
C. Financial Market
1. Primary market: issues new securities on
an exchange for companies, governments
and other groups to obtain financing
through debt-based or equity-based
securities
2. Secondary market: is the financial
market in which previously issued financial
instruments such as stock, bonds, options,
and futures are bought and sold.
3. Bull market: is a financial market of a
group of securities in which prices are
rising or are expected to rise, encouraging
buying.
4. Bear market: is a condition in which
securities prices fall and widespread
pessimism causes the stock market's
downward spiral to be self-sustaining,
encouraging selling.
5. Capital market: are markets for buying
and selling equity and debt instruments.
6. Money market: where financial
instruments with high liquidity and very
short maturities are traded.
I. PLAYERS IN THE FINANCIAL MARKET
1. Broker: is an individual or firm that
charges a fee or commission for executing
buy and sell orders submitted by an
investor.
2. Dealer: is a person or a firm in the
business of buying and selling securities for
their own account, whether through a
broker or otherwise.
3. Investment bank: a bank that purchases
large holdings of newly issued shares and
resells them to investors.
4. Financial intermediaries: is typically an
institution that facilitates the channeling of
funds between lenders and borrowers
indirectly.
D. OTHER LONG-TERM DECISION (MERGER,
BUS.COM/ JOINT VENTURE..)
1. Merger: is a deal to unite two existing
companies into one new company.
2. Consolidation:
3. Stock purchase: is a company-run
program in which participating employees
can purchase company shares at a
discounted price.
4. Asset purchase: Agreement between
buyer and seller to acquire an
organization's assets, only specified assets
transfer ownership from seller to buyer.
5. Horizontal merger: is a merger or
business consolidation that occurs between
firms that operate in the same space, as
competition tends to be higher and the
synergies and potential gains in market
share are much greater for merging firms
in such an industry.
6. Vertical merger: is a merger between
two companies that operate at separate
stages of the production process for a
specific finished product.
7. Conglomerate merger: is a merger
between firms that are involved in totally
unrelated business activities.
8. Congeneric merger: is a type of merger
where two companies are in the same or
related industries but do not offer the same
products.
9. Joint venture: a commercial enterprise
undertaken jointly by two or more parties
that otherwise retain their distinct
identities.
10. Joint arrangement: is an arrangement of
which two or more parties have joint
control.