Financial Terms related to Net This document is part of the valuable contents available at www.ftpall.com, a free online glossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor. NET Annualized net present value anpv approach • An approach to evaluating unequal-lived projects that converts the net present value of unequal-lived, mutually exclusive projects into an equivalent (in NPV terms) annual amount. Change in net working capital • The difference between the change in current assets and current liabilities associated with an investment project. European monetary system • EMS. An exchange arrangement formed in 1979 that involves the currencies of European Union member countries. Exposure netting • Offsetting exposures in one currency with exposures in the same or another currency, where exchange rates are expected to move in such a way that losses or www.ftpall.com 2|Page gains on the first exposed position should be offset by gains or losses on the second currency exposure. Firm's net value of debt • Total firm value minus total firm debt. International monetary fund • An organization founded in 1944 to oversee exchange arrangements of member countries and to lend foreign currency reserves to members with short-term balance Find thousands of financial terms at www.ftpall.com of payment problems. International monetary market • Abbreviated IMM. A division of the CME established in 1972 for trading financial futures. Related: Chicago Mercantile Exchange (CME). Intracompany netting technique • A technique used by multinational firms to minimize their cash requirements by transferring across national boundaries only the net amount of payments owed between them. Sometimes bookkeeping entries are substituted for international payment. Monetary / non monetary method • Under this translation method, monetary items (e.g. cash, accounts payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g. inventory, fixed assets, and long-term investments) are translated at historical rates. Monetary gold • Gold held by governmental authorities as a financial asset. Monetary policy • Actions taken by the Board of Governors of the Federal Reserve System to www.ftpall.com 3|Page influence the money supply or interest rates. • The actions of the Federal Reserve Board that determine the size and rate of growth of the Money Supply, which in turn affect Interest Rates. See also: Fiscal Policy. Monetary union • The official melding of the national currencies of the EU nations into one currency, the euro, on January 1, 2002. Find thousands of financial terms at www.ftpall.com Monetize • Simply means put your money where your mouth is. Take positions based on your views. Net • Is the difference between long and short positions or the bottom line impact of a transaction. Net adjusted present value • The adjusted present value minus the initial cost of an investment. Net advantage of refunding • The net present value of the savings from a refunding. Net advantage to leasing • The net present value of entering into a lease financing arrangement rather than borrowing the necessary funds and buying the asset. Net advantage to merging • The difference in total post- and pre-merger market value minus the cost of the merger. Net asset value www.ftpall.com 4|Page • NAV is the price of a share in a mutual fund or investment company. This price is calculated once or twice daily. Net asset value is the amount by which the assets' value exceeds the company's liabilities. It is calculated by adding up the market value of all securities owned by the company, subtracting the company's liabilities, and dividing this value by the number of shares of the company outstanding. Thus, the NAV indicates the current buying or selling price of a share in an investment company. • Abbreviated NAV. The value of a fund's investments. For a mutual fund, the net Find thousands of financial terms at www.ftpall.com asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed end fund, the market price may vary significantly from the net asset value. • Abbreviated NAV. The value of a Mutual Fund share calculated once a day, based on the closing market price for each security in the fund's portfolio. It is computed by deducting the fund's liabilities from the total assets of the portfolio and dividing this amount by the number of shares outstanding. • Refers to the value of a share or unit of investment. It is computed by adjusting the market value of all investments by the liabilities. Then this net dollar amount is divided by the number of shares or units outstanding. Unless there are additional charges to be imposed upon redemption, the Net Asset Value becomes the bid and transaction market price. Most open end funds only calculate transactional net asset values once a day based on the closing and settlement prices. Net assets • The difference between total assets on the one hand and current liabilities and noncapitalized long- term liabilities on the other hand. Net benefit to leverage factor • A linear approximation of a factor, T*, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital www.ftpall.com 5|Page structure. Net book value • The current book value of an asset or liability; that is, its original book value net of any accounting adjustments such as depreciation. Net cash balance • Beginning cash balance plus cash receipts minus cash disbursements. Net cash flow Find thousands of financial terms at www.ftpall.com • The mathematical difference between the firm's cash receipts and its cash disbursements in each period. Net change • This is the difference between a day's last trade and the previous day's last trade. • The difference between the closing price of a security on the trading day reported and the previous day's closing price. In over-the-counter transactions, the term refers to the difference between the closing bids. Net coupon • Is the coupon or interest payment made to the investor of a mortgage backed security. It is lower than the gross coupon of the collateral by an amount equal to the servicing, guarantee, and other applicable fees. Net domestic product • A measure of the annual economic output of a nation adjusted to account for depreciation. It is calculated by subtracting the amount of depreciation from the Gross Domestic Product. Net earnings • See Net Profit. www.ftpall.com 6|Page Net errors and omissions • In balance of payments accounting, net errors and omissions record the statistical discrepancies that arise in gathering balance of payments data. Net financing cost • Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned. Find thousands of financial terms at www.ftpall.com Net float • Sum of disbursement float and collection float. Net income • The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. • Equals sales revenue less all costs and expenses for the period • See Net Profit. Net income before taxes • See Pre-tax Income. Net interest margin • A ratio used for evaluating management for bank stocks. Measures the difference between interest paid and interest collected. • Is the difference between the interest revenue and the interest expense. Sometimes, it is referred to as the spread. Net investment • Gross, or total, investment minus depreciation. www.ftpall.com 7|Page Net lease • A lease arrangement under which the lessee is responsible for all property taxes, maintenance expenses, insurance, and other costs associated with keeping the asset in good working condition. Net operating losses • Losses that a firm can take advantage of to reduce taxes. Net operating margin Find thousands of financial terms at www.ftpall.com • The ratio of net operating income to net sales. Net period • The period of time between the end of the discount period and the date payment is due. Net position • Is the difference between longs and comparable shorts. It can also refer to the dollar difference for the combined market values of all long and short positions. Often it refers to the net trading exposure on a market directional basis. However, some firms use different definitions depending on whether the analysis is originating from accounting or trading. Net present value • Abbreviated NPV. The present value of the expected future cash flows minus the cost. • Abbreviated NPV. A sophisticated capital budgeting technique; found by subtracting a project's initial investment from the sum of the present value of its cash inflows discounted at a rate equal to the firm's cost of capital. • NPV shows the change in wealth as a result of taking a project. NPV is computed as the discounted cash flows. To maximize wealth, take all projects with positive www.ftpall.com 8|Page NPV and reject all projects with negative NPV. • Is one of the building block processes for finance. It provides a methodology for evaluating and pricing securities and projects. In a simple case it is the discount mechanism for a zero coupon security. Here, there is one payment predicated either on interest or principal. By knowing the time left to maturity, assuming no option features, and knowing the discount rate, one can price or evaluate the zero coupon. Pricing bonds is an extension of this process. Now, instead of evaluating, one payment, there is an entire interest and principal payment stream. For equities, the Find thousands of financial terms at www.ftpall.com process evaluates expected cash or dividend flows and the residual value of the enterprise. Complexity arises when there are multiple discount rates (bids and offers), yield curve shapes, and credit differences. Even the selection of discrete, compounding or accretion modeling can make a substantial impact on the value of a simple zero coupon bond. Net present value approach • An approach to capital rationing that is based on the use of present values to determine the group of projects that will maximize owners' wealth. Net present value of future investments • The present value of the total sum of NPVs expected to result from all of the firm's future investments. Net present value of growth opportunities • A model valuing a firm in which net present value of new investment opportunities is explicitly examined. Net present value profiles • A table and/or graph that shows the net present value for a project at various discount rates. Net present value rule www.ftpall.com 9|Page • An investment is worth making if it has a positive NPV. Projects with negative NPVs should be rejected. Net proceeds • Funds actually received by the issuing firm from the sale of a security. This is equal to the selling price to the public less the costs of underwriting and distribution of the securities. Net profit Find thousands of financial terms at www.ftpall.com • Also known as Net Earnings or Net Income. Profits remaining after all expenses and taxes are applied and out of which dividends are payable. Net profit margin • Net income divided by sales; the amount of each sales dollar left over after all expenses have been paid. • Measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted. • A measurement defined as the net income before non-recurring gains and losses, as a percentage of sales or revenues. Net profits rule • The legal rule governing Canadian companies that dividends can only be paid from current and past earnings. Net sales • Total Sales minus customer Returns and Allowances Net salvage value • The after-tax net cash flow for terminating the project. Net working capital www.ftpall.com 10 | P a g e • Current assets minus current liabilities. Often simply referred to as working capital. • A measure of liquidity calculated as the difference between the firm's current assets and its current liabilities, or, alternatively, the portion of current assets financed with long-term funds; can be positive or negative. • Net Working Capital refers to the net non-interest bearing short term assets: Hence, net working capital equals cash plus inventories plus accounts receivables minus accounts payables. Net working capital recapture Find thousands of financial terms at www.ftpall.com • A positive cashflow benefit in a capital budgeting analysis that arises with the termination of a project. At termination, sales associated with the project cease, and the company will recover the originally invested net working capital. Net worth • Common stockholders' equity which consists of common stock, surplus, and retained earnings. • See Shareholders' Equity. • Assets possessed by an individual or company in excess of liabilities. Netting • Reducing transfers of funds between subsidiaries or separate companies to a net amount. • Is a process used by institutions and clearinghouses to determine the marginal risks and demands for funds. Netting out • To get or bring in as a net; to clear as profit. Payments netting • Reducing fund transfers between affiliates to only a netted amount. Netting can be www.ftpall.com 11 | P a g e done on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together). Safety net return • The minimum available return that will trigger an immunization strategy in a contingent immunization strategy. Simex singapore international monetary exchange • A leading futures and options exchange in Singapore. Find thousands of financial terms at www.ftpall.com Uniform net capital rule • Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.