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Published by Gustavo
Financial Terms Related to Debt
Financial Terms Related to Debt

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Published by: Gustavo on May 13, 2011
Copyright:Traditional Copyright: All rights reserved


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   F   i   n   d    t   h   o  u   s   a   n   d   s   o   f   f   i   n   a   n   c   i   a   l   t   e   r   m   s   a   t  w  w  w .   f   t   p   a   l   l .   c   o   m 
Financial Terms related to Debt
This document is part of the valuable contentsavailable atwww.ftpall.com
a free onlineglossary with more than five thousand financialand business terms.
This document can be copied and distributed freelyrespecting its original format. It is forbidden itstranscription, translation or change on its formatwithout authorization of its author or editor.
• The ability of a firm to make the contractual payments required on a scheduled
basis over the life of a debt.Cost of debt 
• Denotes the interest rate paid to bondholders. In the context of valuing
firms, if thecapital is debt, the cost of capital is called the cost of debt (synonymous with "yield").Cost of long term debt 
• The after tax cost today of raising long
-term funds through borrowing.Debt 
• Refers to a relationship which obligates a borrower to pay interest and principal.
The terms are often in writing and define the relationship. Indentures and mortgagenotes are common ty
pes of these written instruments of indebtedness.
   F   i   n   d    t   h   o  u   s   a   n   d   s   o   f   f   i   n   a   n   c   i   a   l   t   e   r   m   s   a   t  w  w  w .   f   t   p   a   l   l .   c   o   m 
• Debt is a higher priority claim (in liquidation') compared to equity. These payments
must be made, otherwise the firm will be subject to court-ordered bankruptcy orliquidation. It is also called leverage.
• Money borrowed.
• Ability to borrow. The amount a firm can borrow up to the point where the firm
value no longer increases.Debt capital 
• All long
-term borrowing incurred by the firm.Debt covenants 
• Debt covenants spell out the details of the debt contract. For instance, the level
and the timing of the promised interest rate and principal payments are explicitlystated. The covenants restrict the ability of the borrower to increase the risk of thefirm after debt is taken on, or drain the assets of the firm. They are also designed toprovide early warning signals if the health of the firm begins to weaken.Debt displacement 
• The amount of borrowing that leasing displaces. Firms that do a lot of leasing will
be forced to cut back on borrowing.Debt due 
• The sum of bank and other notes payable in 12 months or less, and the portion of 
long term debt payable within a year.Debt equity ratio 
• Measures the ratio of long
-term debt to common equity.Debt financing 
• Raising money for working capital or for capital expenditures by selling bonds, bills,
   F   i   n   d    t   h   o  u   s   a   n   d   s   o   f   f   i   n   a   n   c   i   a   l   t   e   r   m   s   a   t  w  w  w .   f   t   p   a   l   l .   c   o   m 
or notes to individual or institutional investors. In return for the money lent, theindividuals or institutions become creditors and receive a promise to repay principaland interest on the debt. The other major way of raising capital is to issue shares ofstock in a public offering. See also: Equity Financing.Debt instrument 
• An asset requiring fixed dollar payments, such as a government or corporate bond.
The amplification in the return earned on equity funds when an investment isfinanced partly with borrowed money.
• The amplification of the return earned on equity when an investment or firm is
financed partially with borrowed money.Debt limit 
• Is the maximum amount of debt which a municipality may issue or incur.
• A bond covenant that restricts in some way the firm's abili
ty to incur additionalindebtedness.Debt market 
• The market for trading debt instruments.
• Total debt divided by total assets.• Measures the proportion of total assets financed by the firm's creditors.
• Reducing the principal and/or interest payments on LDC loans.

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