ShmoopTube

What is Contingent Liability? Contingent liability refers to a possible liability in the future contingent upon some other event being the trigger....

Power of attorney refers to the authorization to conduct business on legal and financial matters on behalf of another party. So...choose wisely.

How do you get a startup funded? Depends if we're talking about a tech startup, or a non-tech startup. If you've got a promising, budding tech comp...

Are monopolies evil? Should they be regulated? Should they be illegal? Monopolies in and of themselves, are neither good nor evil. How they conduct...

A liquid market is a market featuring high trading volumes, i.e. investors actually want to put their cash to work.

What's a yankee bond, and does it stick a feather in its cap and call it macaroni?

What is a limited partnership? A limited partnership is one in which at least one party is a general partner who assumes personal liabilities and i...

A trust deed lays out the rights and obligations of the bank underwriting the purchase of inventory/assets. That said, it won't catch you in a trus...

What is a partnership? A partnership is an arrangement where two or more parties agree to form a business in cooperation with each other. Partnersh...

PERLS is a bond that pays interest twice a year, but whose yield is linked to a given foreign exchange rate. It also doesn't string very well on a...

What are CEOs, CFOs, and COOs? The “C” level executives in a corporation are the corporate officers responsible for the management decisions an...

What is an Affiliated Person or Affiliated Investor? An affiliated person is known as an insider in the financial world. These are the people who h...

What does it mean to "go public?" An IPO raises cash in the form of equity, usually, for investors. When public, a company exists under SEC dominio...

What is a registration statement? A registration statement is the set of documents that accompany a filing of securities with the SEC for sale in t...

NAV isn't a cool new navigation app...it's how mutual fund shares are valued or priced at the end of each trading day.

What's the SEC? Easy. Seals Eating Candy. Or maybe Silly Elephants Canoodling? We can never remember. Guess it's time to watch this video and refre...

What is an LLC? LLC stands for Limited Liability Company. It is a hybrid type of company that combines the corporate protections of separating corp...

Reg A is an exemption for the sale of securities. We wonder if it has any sweet steel drums in the background.

What is a Dissident Director? The Board of Directors of a company usually reaches a consensus the majority of the time in order to decide on polici...

"Safe harbor" refers to the notion that, if you follow a basic set of rules, you cannot be found guilty of a crime or shady dealings.

What are operating profits, net profits and gross profits? Profits for a company can be calculated several different ways depending on what metric is being cited. Gross profits are measured by total revenues minus cost of goods or services sold. Of course, a company also has operating expenses, as well as depreciation and amortization, which are accounting deductions on equipment and other property belonging to the company. The Operating profit subtracts those elements from the Gross profit. The Net profit also factors in taxes and interest, which are also company costs that can apply against revenues. Naturally, the Net profit will result in the smallest number. Gross profit is also sometimes referred to as EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization.

Who benefits from unions? Trade unions ostensibly exist to protect the interests of their rank and file constituent members. They were crucial for enacting safety rules and fair practices during the early and mid periods of industrialization in Western society. Changes in labor laws and increased flexibility in human resources, the resurgence of small businesses, and the corruption problems between trade union officers and organized crime have reduced private sector participation in trade unions membership.

What is the difference between common and preferred shares? Common stock is at the bottom. It comes at the very end, when a company is sold, in the priority stack. It sits behind bank debt, the IRS, preferred stock, and pretty much everything else. The big advantage of common stock? It is the proletariat of investing: common stock shareholders elect the board of directors, who then are responsible for managing the company from 37,000 feet.

What are pink sheets? And can we bleach them to make them white again?

A wrap account is an account that wraps into one annual fee all of the services you'd normally pay for a la carte at a given brokerage.

An omnibus account is an investment account in which a collection of investors have invested their capital to own a pro rata share of that cooperative investment. Either that, or it’s a lot of buses.

What is a balance sheet? A balance sheet is a financial document that public corporations are required to use. It shows their assets and liabilities (what they have and what they owe). It also includes shareholder’s equity, or how much is invested in the company, and this number combined with liabilities should be equal to assets (balanced).

What are Fixed Assets, Tangible Assets and Intangible Assets? Fixed assets are long term, illiquid assets that are necessary for a company’s operation. Accountants usually categorize Fixed Assets as Property, Plant and Equipment (PPE). Tangible Assets include fixed assets as well as other physical assets, such as inventory, vehicles, and other tactile assets. Intangible assets are those that exist as legally enforceable constructs, such as licenses, patents, goodwill, social media influence, branding, etc.

An MBO is a Management Buy Out (a buy out by inside management); an LBO is a Leveraged Buy Out (taking on debt to buy a company).

What are Debt Service and Debt Service Ratio? Debt service is the amount of funds needed by a borrower to successfully cover interest and principal payments over a specified time period. The debt service ratio is a calculation of net operating income divided by total debt service. The quotient of the calculation gives the Debt Service Ratio and the difference of the service numbers from the income indicate if the borrower can handle additional debt if needed.

A pooled interest occurs when two or more investors combine capital in order to make a joint investment. Especially if investing in a prosthetics company.

What is a Money Market Fund/Commercial Paper? Money Market Funds are mutual funds that are very safe and liquid. They invest in cash and securities with short-term maturities. Commercial paper is similar in that it has the short-term aspect. It is different because it’s issued by companies and used to take care of various financial obligations in the short term, or to buy inventory.

What is the Times Interest Coverage Ratio? The interest coverage ratio divides EBIT by interest expenses. It looks at a company’s ability to pay off its interest on debt given earnings. If the ratio is low, these numbers are too close together, which shows that the company struggles to cover interest. The “times” aspect comes in because the ratio shows how many times a company could pay their debts using what they’ve made.

What is Debt-to-EBITDA? Debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a ratio that calculates Debt to net earnings before the accountants step in. EBITDA divided into debt gives a very quick estimate of a borrower’s ability to service debt principal as then interest can quickly be calculated and debt is deductible against taxes.

What does it mean to "roll up"? Roll Up refers to when a larger entity gobbles up its smaller competitors via acquisition. A good example is JP Morgan Chase Bank. A look at its history shows its roots as the Bank of Manhattan, founded by Aaron Burr. Manufacturers’ Hanover Trust, Chemical Bank, First Chicago, Great Western Bank, Bank One, Wachovia Bank, Bear Stearns, and Washington Mutual are all smaller banks that were systematically absorbed into the conglomerate that we know today as JP Morgan Chase, and is a prime example of a roll up.

What rights does a public stockholder have? Common shareholders elect the board of directors. They vote. They have the right to quarterly financial disclosures in GAAP. 10Qs, 10Ks, annual reports... audited... are all obligations of the company.

A residual claim to assets is a preferred stock investor's right to the financial remains of a company that's... gone the way of the dodo.

What is a Coverdell Education Savings Account (CESA)/403c? College savings plans, such as the 529, operate similarly to IRAs in that they are allowed to grow tax deferred and spent on education. The Coverdell ESA is similar to a 529, but also allows for use with private elementary, junior high and high school tuition costs, not just college.

What is an Agency Relationship? An agency relationship allows an agent to act on behalf of the individual or company who hires them. This type of relationship is common in the financial world because individuals who hire financial advisors or fund managers to handle their finances are essentially creating agency relationships.

What is the Debt-to-Equity Ratio? Debt to Equity ratio is a metric used to determine the degree of financial leverage a company has. The formula is the quotient of Total Liabilities divided by Total Shareholder Equity. Different industries, especially ones that may be capital intensive, such as aircraft manufacturing, may traditionally have higher Debt to Equity ratios than those with relatively low overhead, such as IT. If a company’s growth and profits continue to increase, investors are willing to accept higher debt to equity ratios, such as with Netflix or Amazon. The underlying rationale is that the increased debt funds are being used to gain more market share and increase business in a positive manner that can justify the higher ratios.