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 Understanding of some US financial terminology,

1. Common stock
2. Preferred stock
3. Senior Debts
4. Senior Subordinated Debts
5. Subordinated Debts
6. Junior Subordinated Debts
7. Trust Preferred Securities (TPS)
8. Mezzanine level items
9. Minority interest & Minority Interest Expense
10. Non-recurring Items (Income & Expenses)
11. Extra ordinary items
12. Off-Balance Sheet Items/Contingent Liabilities
13. Earnings per share - Basic & Diluted
14. Treasury Stock
15. Deferred Tax Assets/Liabilities
16. Depreciation & Amortization
17. Intangible assets
18. Short term- Long Term Borrowing
19. Stock Split- Stock Dividend
20. Book Value per Share
21. Voting Rights
22. Concept of Public Company and Private Company and SNL coverage of both
23. Restatement and reclassification
24. Cash flow Activities (Operating, Financial & Investments)

1. Common Stock:
Common stock is one form of securities issued by a public corporation.

The purchase of common stock provides the shareholder with a specified amount of
equity ownership in the issuing company, as well as various rights and privileges
connected with the operation of the corporation.

Since common stock represents ownership of a business, stockholders are the last to get
paid, like all other owners. A company must first pay its employees, suppliers, creditors,
maintain its facilities and pay its taxes. Any money left can then be distributed among its
owners.
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2. Preferred stock:

Preferred stock doesn't offer the same potential for profit as common stock, but it's a
more stable investment vehicle because it guarantees a regular dividend that isn't
directly tied to the market like the price of common stock.

The price of preferred stock is tied to interest rate levels, and tends to go down if
interest rates go up and to increase if interest rates fall.

The other advantage of preferred stock is that preferred stockholders get priority when
it comes to the payment of dividends.

Like common stock, preferred stock represents ownership in a company. However,

owners of preferred stock do not get voting rights in the business.

3. Senior Debts:

Payment of which takes priority over the (junior) debts and which must be paid first
from proceeds of a liquidation sale in case of a default.

Debt that ha priority for repayment in a liquidation.

Priority as shown below

Senior Debt (1)

4. Senior subordinated debt (2)

5. Subordinated debt (3)

6. Junior subordinated debt (4)

7. Trust Preferred Security (TPS)

TPS possess characteristic of both equity and debt issues. A company creates trust-
preferred securities by creating a trust and issuing debt to the new entity. Because the
interest paid to the trust is tax-deductible, the company may realize significant tax
benefits.

8. Mezzanine level items

Minority interest, redeemable equity and all other items that appear between liability
and equity on the face of the balance sheet are Mezzanine level items.
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9. Minority Interest and Minority Interest expense

Minority Interest: Minority interest represents a situation in which an individual, group

of individuals or company owns a portion of another company that is equal to less than
50% of its voting shares, otherwise known as ordinary shares. It was devised by
accountants as a way to track any divisions of ownership and control over a company. A
company that holds more than 50% of the voting shares is referred to as the parent
company.

Minority Interest expense:

In most nations, there are regulations that at least partially protect the interests of the
minority shareholder. These laws help to minimize the possibility of majority
shareholders from employing strategies or making decisions that blatantly benefit the
majority at the expense of the shareholders with a smaller stake.

While these funds are somewhat limited depending on the amount of investment
activity that’s focused on minority-owned businesses, there can be additional benefits
to the minority business owner in the form of mentoring, low-interest loans and other
forms of support that can be attained in this manner.

10. Non-recurring item

Revenues or gains and expenses or losses that are not expected to recur
on a regular basis. This term is often used interchangeably with special items.

11. Extra ordinary item

Extra ordinary item and non-recurring item are interchangeable.

12. Contingent liability

Hypothetical liability which depends on a possible (but hardly likely) event or situation
to occur before becoming an actual liability. Contingent liabilities are different for every
type of business and profession, and management makes provision for them by setting
aside appropriate funds as reserves. Examples include acts of employees, credit
guaranties, incomplete contracts, pending court cases, third party indemnities, unfilled
purchase orders, unsettled disputes, etc. Under corporate-legislation, contingent
liabilities must be disclosed in a balance sheet via an explanatory note (footnote).
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13. Earning Per Share

The EPS is the total profits of a company divided by the number of shares.  A company with
$1 billion in earnings and 200 million shares would have earnings of $5 per share.

A good way to determine whether or not a company is growing is by looking at their

earnings per share now compared to previous years.  For example, if a company has $5.00
EPS this year and $4.00 EPS last year, we would say that their earnings grew 25%.

It's also important to remember that if a company issues more shares of stock, it "dilutes"
the EPS figures.  So investors are usually not happy when companies announce secondary
offerings.  Unless, of course, the money the company raises will be put to use well.

14. Treasury Stock

It's a company owning it's own stock - either by way of a merger or a buyback. The
company can reissue the stock on a future date.

15. Deferred Tax Assets/Liabilities

Deferred tax means it is a timing difference between the companies and income tax act.

Deferred tax liability arise when the IT act depreciation higher than the companies act
depreciation.

Deferred tax Asset arise when the IT act depreciation lesser than the companies act
depreciation.

16. Depreciation and amortization

Depreciation and amortization are accounting transactions that record the loss in value
of long-term assets.

Depreciation is usually for tangible asset and amortization is for intangible asset.

17. Intangible assets

The asset you cannot touch or see but that have value.

e.g. goodwill, Patent

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18. Short term- Long term borrowing

Borrowing meant for less than 1 year is short term borrowing while borrowing more
than 1 year is called long term borrowing.

19. Stock split- stock dividend

A stock split is essentially when a company increases the number of shares. For
example, if you owned 25 shares of XYZ at $15 per share, and there was a 2-1 stock split,
you would then own 50 shares worth $7.50 each.

Some companies believe that their stock should be inexpensive so more people can buy
it. This creates a condition where more of the company's stock is bought and sold (this is
called "increased liquidity"). The problem, in theory, is that the increased activity will
also leads to bigger gains and drops in the stock, making it more volatile.

20. Book value per share

Equals to the book value of a company divided by the number of shares outstanding.

Book value is a good way of judging if the stock market value is reasonable compared to
company's true value. Market value is usually higher than the book value. A good
indication of safer investment is if the stocks market capitalization is close to the book
value.

Market value is what the investment community's expectations are and book value is
based on costs and retained earnings.

For example, if the market value is more than twice of the book value, company might
be overvalued. However, buying a stock based only on a book value is not
recommended. As always, other things need to be considered, such as: earnings,
economic conditions, etc.

A thing to remember is that during bull markets the stock price is more likely to trade
much higher than book value, and in a bear market the two value's may be much closer.

21. Voting rights

The right of a common stock shareholder to vote, in person or by proxy, for members of
the board of directors and other matters of corporate policy, such as the issuance of
senior securities, stock splits and substantial changes in operations.
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22. Public company VS Private company

The difference between a private company and a public company is that the latter is
traded on the stock market, or offers its securities for the public to buy. Private
companies are neither government owned, nor traded publicly. Typically, private
companies are owned by a small group of individuals.

Privately Owned Companies

Privately owned companies do not sell their company securities to the public, and are
owned within a set amount of individuals privately. The majority of these ownerships
are held by families, including Mars, Inc., the candy company; and Meijer retail stores.

Unlimited liability.

Publicly Owned Companies

Publicly owned companies are those that trade their securities publicly, so anyone can
buy stock in the company, as a way to finance the business. Publicly owned companies
can be found trading in The New York Stock Exchange, Standard & Poor or NASDAQ.
Larger public corporations include the likes of Proctor & Gamble and Google.

Limited liability.

23. Restatement and reclassification

Reclassifications deal with financial statement items, whereas restatement with

financial statement figures.

If, for example, the finance charges on capital expenditures is mistreated in income
statement as financial expenses, the charges should be reclassified as purchase costs of
capex under IAS or USGAAP in balance sheet. On the other hand, if the finance charges
in income statement are under-or-overstated, say, by $100,000, the finance charges
should be substracted or added by the amount to restate in the income statement
under the principles of accounting conceptual framework, i.e., relevancy and reliability
of financial information.

24. Cash Flow

Cash flow is usually understood to be the total amount of cash that is generated and
received by a company, along with the amount of cash that is used for expenses of the
organization. Generally, tracking cash flow means the immediate recording of
transactions in a cash journal. Monitoring cash flow is considered essential to having an
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accurate picture of the financial stability of the business, and often can yield information
that can be used to improve the economic condition of the company

Operational activities: In financial accounting, operating cash flow (OCF), cash flow
provided by operations or cash flow from operating activities, refers to the amount of
cash a company generates from the revenues it brings in, excluding costs associated
with long-term investment on capital items or investment in securities

Investment activities: An item on the cash flow statement that reports the aggregate
change in a company's cash position resulting from any gains (or losses) from
investments in the financial markets and operating subsidiaries, and changes resulting
from amounts spent on investments in capital assets such as plant and equipment.

Financial activities: A category in the cash flow statement that accounts for external
activities such as issuing cash dividends, adding or changing loans, or issuing and selling
more stock. The formula for cash flow from financing activities is as follows:

Cash Received from Issuing Stock or Debt - Cash Paid as Dividends and for Re-Acquisition
of Debt/Stock.