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Amortization:
The word Amortisation (or amortization) comes from Middle English amortisen to kill, alienate
in mortmain, from Anglo-French amorteser, alteration of amortir, from Vulgar Latin admortire "to
kill", from Latin ad- and mort-, "death". Amortisation (or amortization) is the process of decreasing
or accounting for an amount; over a period. (Wikipedia)
To pay money that is owed for something (such as mortgage) by making regular payments over a long
period of time. (Merriam-Webster Dictionary)
Amortization is an accounting term that refers to the process of allocating the cost of an intangible
asset over a period of time.
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For
example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved
with creating the medical equipment is spread out over the life of the patent, with each portion being
recorded as an expense on the company's income statement.
2.
3. Bond indenture:
Bond indenture is a legal document that specifies both the rights of the bondholders and the duties of
the issuing corporation.
4. Bonus Share:
A bonus share is a free share of stock given to current shareholders in a company, based upon the
number of shares that the shareholder already owns While the issue of bonus shares increases the total
number of shares issued and owned, it does not change the value of the company. Although the total
number of issued shares increases, the ratio of number of shares held by each shareholder remains
constant.
5. Capital Budgeting:
The process of evaluating and selecting long-term investments that is consistent with the firms goal
of maximizing owners wealth.
6. Capital Market:
The capital market is a market that enables suppliers and demanders of long-term funds to make
transactions. Included are securities issues of business and government. The backbone of the capital
market is formed by the broker and dealer markets that provide a forum for bond and stock
transactions. International capital markets also exist.
7. Capital Rationing:
The financial situation in which a firm has only a limited amount of money available for capital
expenditures, and numerous projects compete for this amount.
8. Cash Flow:
Cash flow is a straightforward measure of the money flowing into and out of the company.
The total amount of money being transferred into and out of a business, especially as affecting
liquidity.

9. Corporate Finance:
Corporate finance is the area of finance dealing with the sources of funding and the capital structure of
corporations and the actions that managers take to increase the value of the firm to the shareholders, as
well as the tools and analysis used to allocate financial resources.
10. Cost Of Capital:
The cost of capital represents the firms cost of financing and is the minimum rate of return that a
project must earn to increase firm value. Investments with a rate of return above the cost of capital
will increase the value of the firm, and projects with a rate of return below the cost of capital will
decrease firm value.
The cost of capital is an extremely important financial concept. It acts as a major link between the
firms long-term investment decisions and the wealth of the firms owners as determined by the
market value of their shares. Financial managers are ethically bound to invest only in projects that
they expect to exceed the cost of capital.
A firms cost of capital is estimated at a given point in time and reflects the expected average future
cost of funds over the long run.
11. Debentures:
Unsecured bonds that only a trust worthy firm can issue is called debentures. Convertible bonds are
usually debentures.
12. Dividend:
More specifically dividends can be defined as, a payment made by a corporation to its shareholders,
usually as a distribution of profits.
A corporation may retain a portion of its earnings and pay the remainder as a dividend. Distribution to
shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has
a dividend reinvestment plan, the amount can be paid by the issue of further shares or share
repurchase. A dividend is allocated as a fixed amount per share.
13. Earnings Per Share (EPS):
The amount earned during the period on behalf of each outstanding share of common stock, calculated
by dividing the periods total earnings available for the firms common stockholders by the number of
shares of common stock outstanding.
EPS are calculated by dividing the periods total earnings available for the firms common
stockholders by the number of shares of common stock outstanding.
14. Financial Market:
Financial markets are forums in which suppliers of funds and demanders of funds can transact
business directly.
Whereas the loans made by financial institutions are granted without the direct knowledge of the
suppliers of funds (savers), suppliers in the financial markets know where their funds are being lent or
invested. The two key financial markets are the money market and the capital market. Transactions in
short-term debt instruments, or marketable securities, take place in the money market. Long-term
securitiesbonds and stocksare traded in the capital market.

15. Hybrid Security:

A form of debt or equity financing that possesses characteristics of both debt and equity financing.
Example: preferred stock, convertible securities, financial lease, stock purchase warrant etc.
16. Internal Financing:
Internal financing is the process of using a firms own profits as a source of capital for new investment
rather than
a) distributing them to firm's owners or other investors and
b) obtaining capital elsewhere.
Other sources of internal financing are:
i. Retained earning
ii. Current Assets
iii. Fixed Assets
iv. Personal Savings
17. Internal Rate of Return (IRR):
The internal rate of return (IRR) is the discount rate that equates the NPV of an investment
opportunity with $0 (because the present value of cash inflows equals the initial investment). It is the
rate of return that the firm will earn if it invests in the project and receives the given cash inflows.
Equation to calculate internal rate of return is as following:

18. Investment Company:

An investment company is a company whose main business is holding securities of
other companies purely for investment purposes. The investment company invests money on behalf of
its shareholders who in turn share in the profits and losses.
19. Lease Finance:
A finance lease or capital lease is a type of lease. It is a commercial arrangement where:
the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
the lessor (finance company) will purchase that asset;
the lessee will have use of that asset during the lease;
the lessee will pay a series of rentals or installments for the use of that asset;
the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals
paid by the lessee;
the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain
option purchase price);
20. Leverage:
Leverage refers to the effects that fixed costs have on the returns that shareholders earn; higher
leverage generally results in higher but more volatile returns.
In the above definition fixed costs we mean costs that do not rise and fall with changes in a firms
sales. Firms have to pay these fixed costs whether business conditions are good or bad. These fixed
costs may be operating costs, such as the costs incurred by purchasing and operating plant and
equipment, or they may be financial costs, such as the fixed costs of making debt payments.
Generally, leverage magnifies both returns and risks. A firm with more leverage may earn higher

returns on average than a firm with less leverage, but the returns on the more leveraged firm will also
be more volatile.
21. Lock Box System:
A collection procedure in which customers mail payments to a post office box that is emptied
regularly by the firms bank, which processes the payments and deposits them in the firms account.
This system speeds up collection time by reducing processing time as well as mail and clearing time.
Lockbox systems are commonly used by large firms whose customers are geographically dispersed.
However, a firm does not have to be large to benefit from a lockbox. Smaller firms can also benefit
from a lockbox system.
22. Merchant Bank:
According to the U.S. Federal Deposit Insurance Corporation (acronym FDIC), "the term merchant
banking is generally understood to mean negotiated private equity investment by financial institutions
in the unregistered securities of either privately or publicly held companies." Both commercial
banks and investment banks may engage in merchant banking activities.
To simplify we can define Merchant bank as A kind of bank that deals mostly in (but is not limited to)
international finance, long-term loans for companies and underwriting. Merchant banks (usually) do
not provide regular banking services to the general public.
23. Money Market:
The money market is created by a financial relationship between suppliers and demanders of shortterm funds (funds with maturities of one year or less). The money market exists because some
individuals, businesses, governments, and financial institutions have temporarily idle funds that they
wish to invest in a relatively safe, interest-bearing asset. At the same time, other individuals,
businesses, governments, and financial institutions find themselves in need of seasonal or temporary
financing. The money market brings together these suppliers and demanders of short-term funds.
24. Portfolio:
Portfolio is a collection, or group, of assets. Portfolios may be held by individual investors and/or
managed by financial professionals, hedge funds, banks and other financial institutions.
25. Primary Market:
Financial market in which securities are initially issued; the only market in which the issuer is directly
involved in the transaction.
The primary market is the part of the capital market that deals with issuing of new securities.
Companies, governments or public sector institutions can obtain funds through the sale of a
new stock or bond issues through primary market. This is typically done through an investment
bank or finance syndicate of securities dealers.
26. Retained Earnings:
Retained earnings represent the cumulative total of all earnings, net of dividends, that have been
retained and reinvested in the firm since its inception. It is important to recognize that retained
earnings are not cash but rather have been utilized to finance the firms assets.
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